HEAD-TO-HEAD: Blackrock versus Pimco

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Patrick Ge, Morningstar

INTRODUCTION

Several asset managers have promoted their Asian fixed income funds in recent months, emphasising the higher yields and shorter durations available compared with US and European bonds, as well as lower corporate default rates in the region.

According to HSBC Global Asset Management data, the average spread for Asian high yield credit has narrowed to 680 basis points (bps) from the widest level of 1,579 bps during the sell-off in late March, but still attractive compared with 369bps two years ago, and much wider than the 386 bps for the ICE BofA US High Yield Index and 365bps for the ICE BofA European Ccy High Yield Index.

Moreover, the Asian credit market offers income that is higher than about 90% of the global fixed income markets, achieved with an investment grade average rating and low duration, according to a leading global asset manager.

The risk of defaults appears to be lower in Asia too, than in other areas such as the US — 3-4% compared with high single digits — and the broader emerging markets, thanks to more advanced coronavirus recovery.

In an environment where negative-yielding government bonds amount to around $15.5trn and central bank interest rate cuts and bond purchases are sending US and European credit yields lower, without expectations of directional change for at least another year, Asian credit should be a beneficiary.

“The region’s economic resilience and healthy investors’ demand, [means] we have witnessed promising growth in the [Asian credit] asset class in terms of market size, number of issuers and markets as well as duration and sector diversification,” said Cary Yeung, head of Greater China debt at Pictet Asset Management, which launched a Hong Kong-domiciled Asian Bond Income Fund last month.

In this encouraging environment for Asian credit, FSA asked Patrick Ge, an analyst at Morningstar, to compare funds run by two of the world’s most respected fixed income managers: the Blackrock Asian Tiger Bond Fund and the Pimco Asia Strategic Interest Bond Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 3 February 2021)

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