Median fixed income outperforms equities by 20%

GLOBAL – Fixed income markets have outperformed equity markets for the second year in succession, according to research by Standard & Poor’s. Median returns for bonds ranged from -0.9% to 4.5%, against a fall of 21% in sterling terms (24% in dollar terms) for the median global equities fund.

Euro-denominated funds were the best performing bond sector according to the research. S&P says the markets were helped by a high level of new corporate bond issues and the importance of assessing credit risk. Euro-denominated corporate bonds now account for over 17% of the euro-zone fixed income market, compared with just 2.2% in 1996, says the report.

Currency strategies with managers overweighting dollar positions, underweighting yen, whilst employing tactical euro strategies also helped enhance fixed income returns, the research suggests.

Says James Tew, European head of research at S&P: “Strong fundamentals provided global fixed interest managers numerous opportunities to outperform last year. In all but one of the core currency sectors – sterling, dollar, Swiss franc and euro – the median global bond fund outpaced the benchmark index adjusted for local currency. Even in the euro sector underperformance was marginal.”

The research looked at the performance of 63 funds in the year to February 1, 2002. This sample represents an increase of 42 funds over the same report a year earlier. This increase is due in part to the inclusion of two new sectors focusing on offshore US dollar funds.

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