After close to four decades of declining interest rates and central bank policy rates hitting zero, the combination of quantitative easing policies, low inflation and tepid growth has driven sovereign bond rates to historic lows. The best case today is that rates remain stubbornly low, but there is also the risk that a new reliance on fiscal stimuli could create budget strains that could drive inflation and rates higher. Sourcing income and managing potential income volatility in this new rate regime presents unprecedented challenges for both fixed-income and equity investors.
The emerging market (EM) consumer theme is not new, and research on this long-term trend suggests that it should endure. Looking ahead, as growth and demand in developed markets begins to slow, EM economies will likely see their growth model shift from export-based to domestic-demand-based. As such, we believe that harnessing the EM consumer opportunity should be central to most emerging market investment strategies.
The scope and demographics of the global middle class are reshaping the global economy in the 21st century. These changes have just begun. A new global middle class is emerging. Reaching the middle class is not just an aspirational benchmark, but signifies when consumption levels begin to grow exponentially. The size of the global middle class is projected to increase from 1.8 billion people in 2009 to 3.2 billion by 2020 and to 4.9 billion by 2030 - and 85% of this growth comes from Asia. Learn about Driving Growth in Emerging Markets
Beyond the Bond Benchmark: A multi-sector bond strategy filtered for opportunity rather than indebtedness
Many investors have traditionally used products that track the Bloomberg Barclays U.S. Aggregate Bond Index as their core fixed-income allocation. As we enter a new rate regime, investors may need to adjust their fixed-income portfolios to avoid overconcentration and minimize interest rate risk. Additionally, the benchmark index does not foster diversification with a two-thirds weighting to government affiliated bonds and high correlation between the largest sectors. This investment strategy commentary highlights why investors should consider a multi-sector bond strategy filtered for opportunity rather than debt.