Allianz GI bangs short duration drum

Asset Class in Focus

The demand for short-duration products is expected to pick up this year amid rising interest rates and several firms, including Allianz GI, have launched relevant products.

Allianz GI bangs short duration drum
Douglas Forsyth, Allianz Global Investors

“Interest rates have not moved materially in more than 10 years. That’s where we are seeing risk in the market and this is an opportunity to diversify into [short-duration] products,”  Douglas Forsyth, San Diego-based chief investment officer for US income and growth strategies at Allianz Global Investors, told FSA.

He added that rising interest rates are not confined to the US. “It is not just the US that will be normalising, we could easily see the same type of stance to occur throughout Europe in the next couple of years.”

Short-duration bonds take out interest rate risks, Forsyth said.

One of the funds that Forsyth manages is the Allianz US Short Duration High Income Bond Fund. The product first rolled out in the US in 2015 and was launched in Hong Kong in early 2017.

The fund, which doesn’t have a benchmark index, invests in US high yield bonds with short duration. The fund has a BB average quality portfolio with a duration of around 1.33 years, according to its fund factsheet.

Holding shorter duration bonds has become a widely discussed topic in both the wealth and asset management industries.

Like Forsyth, Patrick Brenner, head of multi-asset investment for Asia at Schroders, believes that duration should be minimised not just to counter interest rate hikes but also inflation.

Jeik Sohn, investment director at M&G Investments, also believes that having short duration bonds will be key to generating positive returns over the next few years as interest rates rise from the multi-year lows.

Talking about the demand for such products, Elaine Lai, head of wealth development for retail and wealth management for Hong Kong at HSBC, said that the bank is looking at offering shorter duration fixed income product this year.

“We are seeing a lot of talk about the interest rate cycle changing, so that is an area where we have to bring in a solution. We are thinking of short duration fixed income.”

Allianz GI appears to be taking advantage of the expected demand for short-duration products in Asia. In November, the firm launched the Emerging Markets Short Duration Defensive Bond Fund in Hong Kong, according to SFC records.

Axa Investment Managers is touting a similar message. Last year, it rolled out the Asian Short Duration Bonds Fund and Emerging Markets Short Duration Bonds Fund, according to SFC data.

In total, there are 14 short-duration bond products in Hong Kong managed by eight managers, including Alliance Bernstein, Aberdeen Standard Investments, Blackrock, Fidelity, Legg Mason Global Asset Management and Neuberger Berman, according to FE data.


The Allianz US Short Duration High Income Bond versus its sector and the Bloomberg Barclays US Corporate High Yield Index

Time period is since the fund’s inception in the US. It launched last year in Hong Kong. The fund does not use a benchmark index. Fund, index and sector NAVs have been converted to US dollars for comparison purposes.

 

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