The FSA Spy market buzz – 2 June 2023
Buffered funds come out to play, Singapore and Shanghai connect, Franklin’s buying again, under and over estimating technology, US debt ceiling melodrama, Evergrande’s non-payment and much more.
Luke Ng, senior vice president of research at FE Advisory, argues that an investor’s choice of a global bond fund should largely be predicated on their outlook for the global – and especially the US – economy.
A stronger US economy might herald higher US interest rates, which would have a negative impact on funds with long durations: the prices of bonds with long maturity dates tend to move more for a given interest rate change than the prices of short-dated bonds.
“In this scenario, a defensive fund, with holdings concentrated in (high quality) short maturity bonds is the better option,” he said.
Alternatively, a weak US economy might prompt the Federal Reserve to cut interest rates, which would be a boon for funds invested in long-dated bonds.
FSA asked Ng to compare two US-denominated global funds that both aim to provide high returns, through a combination of income and capital growth, yet have adopted strategies at the opposite ends of the duration spectrum.
Part of the Mark Allen Group.