HEAD-TO-HEAD: Amundi versus Pimco

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Mara Dobrescu, Morningstar

Introduction

Inflation is the key issue for fixed income markets this year, as record fiscal stimulus in the US is already boosting economic activity.

At times aggregate demand will likely outpace supply, creating bottlenecks, shortages, and price pressures, as policy makers focus on boosting employment levels after pandemic lockdowns induced job losses in 2020.

The US bond market had anticipated higher inflation, and the 10-year Treasury yield has surged this year. It jumped again this week to 1.64%, following the release of first quarter GDP figures which showed a 6.4% increase from the fourth quarter 2020, which was fuelled by consumer spending.

In this challenging environment, FSA is hosting a Spotlight On: Fixed Income event next week.

However, several analysts believe inflation should subside later in the year.

For instance, Tai Hui, Asia chief market strategist at JP Morgan Asset Management, told a media briefing earlier this month that although he expects strong short-term headline inflation figures in the short-term, it is unlikely that a spike in consumer prices is sustainable beyond next year, which underpins the US Federal Reserve’s commitment to low interest rates until 2023.

Year-on-year base effects for inflation data, a pullback in commodity prices after the recent surge, a lag before an improved employment outlook induces wage rises, and continued (albeit on smaller scale) asset purchases by the Federal Reserve will likely combine to pull back headline inflation from any transient spikes, argued Hui.

Nevertheless, rising bond yields will continue to create challenges for fixed income investors and have significant asset allocation implications.

“The problem for fixed income is that yields are still historically low and don’t compensate for the risks of extending duration,” said Hui.

FSA asked Mara Dobrescu, director at Morningstar, to compare two fixed income products: the Amundi Global Aggregate Bond Fund and the Pimco GIS Income Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 29 Apr 2021)

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