Funds: Volatility prompts allocation changes

Last week’s volatility in financial markets prompted a series of allocation changes by managers trying to minimise their losses, while some funds were hit by the depressed environment. Here’s what happened.

iShares Euro bond ETFs face downgrades

Three ETFs with significant exposure to Spanish and Italian debt were placed on review for downgrade by ratings agency Moody’s, after more than a week of turbulence for markets which forced the European Central Bank to begin purchasing the debt of those two beleaguered sovereigns.

The three funds are iShares Euro Government Bond 1-3 Year ETF, iShares Euro Government Bond 3-5 Year ETF, iShares Euro Government Bond 15-30 Year ETF. The funds are rated Aaa, Aaa and Aa1 respectively.

Moody’s said the decision to consider a downgrade followed earlier downgrades of Italian and Spanish government debt.

“As passive ETFs managed to replicate the performance of their respective indices, the funds are expected to maintain exposures to the respective sovereign issuances of Spain and Italy, therefore resulting in credit profiles subject to negative rating pressure,” the ratings agency said.

Moody’s may also revise the market risk ratings of two of the funds, “which have exhibited an increase in the funds’ performance volatility”, it said.

DWS Invest Chinese Equities fund repositions

The German manager reviewed its Chinese equities fund’s asset allocation, following last week’s market turmoil and because of specific economic conditions within China.

Fund manager Yiqian Jiang chose defensive sectors she thinks will perform in spite of the difficult environment, such as consumer, healthcare, IT, and telecoms, the firm said in a press release.

Positions in weak domestic-demand sectors, including consumer, telecom and property, were added to the fund’s portfolio. Jiang retreated from sectors sensitive to downside pressures on exporting and global growth: ports, energy and metal.

Due to liquidity risk, the firm is monitoring its positions in small and mid cap firms, it said in the note. Fear of rising inflation in China means Jiang is avoiding food and beverage companies without strong brands, but she is positive on luxury goods companies, department stores and supermarkets which she thinks will benefit from setting higher prices for consumers.




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