Credit funds unlikely to repeat 2012 flows and returns, says Fitch

Credit fund performance and flows in 2013 are unlikely to reach levels seen in 2012, according to Fitch Ratings.

The rating agency said that last year the sector benefited from liquidity pumped into the financial system by central banks, and associated reduction in eurozone systemic risk during the second half of the year.

This “provided strong technical support to credit markets, resulting in double-digit performance for all credit fund categories,” it said.

Alastair Sewell, director in Fitch’s Fund & Asset Manager Rating Group, said: “Credit funds delivered double digit returns in 2012, fuelled by sovereign yield compression and credit spread tightening. It seems unlikely that we will see this level of spread tightening again in 2013 and investors are increasingly concerned with the duration risk of bond funds in general. This will make it hard for long-only credit funds to match their 2012 performance and inflows.”

Last year, higher beta funds performed better than those less sensitive to overall market movements. This is important because investment flows followed performance. According to Fitch’s figures 33% of 2012 flows went to funds in the top five-year performance quartile.

There was also a considerable level of flows to smaller and more specialised credit funds, Fitch said. “While 30% of net fund flows in 2012 went to the largest 30% of credit funds, a long-tail of smaller funds also garnered substantial inflows, with the smallest 30% of funds gathering 40% of total flows in 2012.”

Fitch has published further information on credit flows in its latest report Global Credit Funds:Sector Update, which is available at www.fitchratings.com

 

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