Super funds look to increase EM allocations

The market is approaching a crossover point where superannuation funds may look to capitalise on further investments in emerging markets, according to Loomis, Sayles &. Company.

Speaking to Super Review, Andrea DiCenso, vice president and portfolio manager at Loomis Sayles &. Company, said super funds had been asking her firm how it should shift portfolio allocations in this inflationary environment.

“Many are growing concerned around a central bank misstep, could that be the catalyst that tips many global economies into a downturn?” she said.

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The American investment management firm provided multi-asset credit strategies that looked to create an optimal asset allocation mix across credit assets, world credit assets and emerging market debt blended total return strategies.

DiCenso said bank loans had been a buffer to clients’ portfolios in the first quarter of this year during a “tremendous” rate volatility.

“But now we're starting to see interest rate volatility stabilise and the question becomes if we get the stabilisation and rate volatility, does this create an attractive entry point back into emerging markets back into high yields.”

Other than emerging markets, DiCenso said there had been a lot of dislocation in prices within the investment grade corporate space, offering “a really interesting entry point into BBB corporates that can offer 3.5% to 4.5% yields in an area of the market that has not had a tremendous amount of value”.

She said central banks in developed markets had done most of the heavy lifting as they faced higher inflation much earlier than developed markets.

“As a result, their asset prices have re-established themselves far through those COVID lows that we saw in prices, and they have now repriced almost 90% to the lows that we saw during the Global Financial Crisis in some areas of emerging markets fixed income.

“If we do get stabilisation in this inflationary environment, if we get China reopening and a more favourable move from the People's Bank of China in terms of supporting the growth of China, this could be a really interesting point in time where we see crossover investors move back into emerging markets.”

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