Credit and inflation-linked strategies in demand, finds Tabula

May 31st, 2018 | By | Category: Fixed Income

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Fixed income investment vehicles linked to credit- and inflation-based strategies are expected to see the biggest increase in demand from investors over the next two years, according to research from new European ETF provider Tabula Investment Management.

Credit and inflation-linked strategies in demand, finds Tabula

Nearly half (48%) of institutional investors expect demand for inflation strategies to increase between now and 2020.

Nearly half (48%) of institutional investors and wealth managers interviewed expect demand for inflation strategies to increase between now and 2020, and just 2% anticipate a fall. Additionally, investors highlighted investment grade credit where 42% of those interviewed expect demand to increase compared to 10% who think it will fall.

Michael John Lytle, chief executive, Tabula Investment Management, commented, “Our findings reflect investors increasing focus on the impact of inflation and for signs that it’s going to pick up. Many are beginning to make changes to their portfolios in preparation for this.”

He continued, “Increased demand for investment grade credit reflects investors’ continued search for yield, and the difference between implied and realised default rates. The implied default rates are the yields on the securities which are there to compensate investors for the credit risk of the issuer. Today’s yields far outstrip the actual (realised) default rates over the last forty years.”

Other fixed income/debt strategies that investors expect to see a net increase in demand over the next two years include high yield credit, emerging market debt and asset backed securities. Demand for government bonds will remain relatively flat.

Source: Tabula.

Tabula recently announced it is preparing to make its debut with the launch of a range of fixed income ETFs in Europe. The firm’s first ETFs will provide exposure to credit default swap (CDS) indices from IHS Markit.

The firm has stated that future product launches will also focus on fixed income, supporting investors as flows into the asset class accelerate. The firm plans to build out its offering across the asset class, moving from investment grade and high yield credit into inflation, government debt, emerging markets, bank capital, money markets, ESG strategies and Solvency II-efficient funds.

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