The Pride - Issue 4 - Winter 2021 - Magazine - Page 17
SUSTAINABLE INVESTMENT – BONDS
Fund managers: Stuart Steven, Kenny Watson, Aitken Ross
Disparity between the US, UK and Europe gives mixed signals to bond investors, say the Liontrust
Sustainable Investment Fixed Income team, but opportunities abound for those who know where
to look.
Trade war concerns have continued to
dominate sentiment, with rising tensions
between the US and China and the deal
to overhaul NAFTA (the North American
Free Trade Agreement) doing little to
ease things. Markets will watch this
relationship carefully over the coming
months; if the Trump administration does
go forward with another round of tariffs
and China retaliates, it could signal the
beginning of a tit-for-tat escalation cycle
that would be much more destructive for
global growth. Commentators continue
to say both sides will stop short of
anything that causes too much damage
and yet the sabre-rattling continues.
US markets surged ahead for the
summer, before entering “Red October”,
where they saw their worst month
since the financial crisis. Emerging
markets also had a tough time, largely
caused by dollar strength and the
situation in Turkey and Argentina.
Turkey’s worsening relations with the US
sparked a sharp selloff and exposed
weaknesses such as large external
debt and inflation, hidden from view by
widespread liquidity in recent years.
Fears about contagion risk damaged
emerging markets as a whole and
“
while we believe that particular
situation looks to be contained, Italy is
another matter. Concerns surrounding
the country’s political developments
came to the fore in September, as the
government announced proposals for a
deficit of 2.4 per cent, above European
Commission guidelines. At the time of
writing, Italy and the EU remain at
loggerheads over their deficit, which
can only increase overall volatility.
As for the UK, Brexit continues to
dominate as the clock ticks down
towards our scheduled departure from
the EU on 29 March 2019. Government
bond yields have been driven up by
political uncertainty and trade concerns,
and sterling has taken a hit.
With rising interest rates...
volatility management is
becoming an increasingly
important part of fixed
income investing.
“
With rising interest rates creating a
tougher backdrop for bonds – and
heightened potential for macro shocks,
as the last few years have laid bare –
volatility management is becoming an
increasingly important part of fixed
income investing. The market tumult
of October will likely have focussed
investors’ attentions on this even further.
STUART STEVEN
Sustainable Investment Team
Issue 2 Winter 2018 - TH E P R I DE - 17