Global Bond Investing offsets some of the challenges of Canadian Debt
TORONTO, May 31, 2011 /CNW/ - A recently released study by Russell
Investments makes the case for global bond investing to offset some of
the structural inefficiencies and challenges of the Canadian debt
markets, and potentially offer greater upside potential.
The report suggests that despite the fact that Canadian debt markets
have withstood the financial crisis better than most global bond
markets, bond portfolios concentrated in Canada may face challenges
that could limit potential returns due to the smaller investment
opportunities available in this country compared to the larger
international bond markets.
"In this post crisis world, the fixed income landscape globally is
experiencing structural changes," said Greg Nott, Portfolio Manager,
Russell Investments Canada. "While Canadian fixed income investors have
historically benefited from stable returns from the Canadian bond
sectors, our empirical analysis has shown that returns for global bond
investors are not a lot more volatile. Our conclusion is that investors
can significantly enhance their upside potential by including global
bonds in their portfolios with only an incremental increase in
The study also addresses the question of whether Canada offers better
credit risk relative to global markets, and concludes that historical
default and recovery rates show that Canadian bonds offer no meaningful
credit risk advantage over global bonds.
"Some investors believe that owning non-Canadian bonds means taking on
greater risk," said Bilal Naqvi, Senior Analyst, Fixed Income. "In
fact, when we compared bond indices, we found that the key US market
benchmark, ie.e. Barclays US Aggregate has a significantly higher
percentage in the AAA bucket at 78%, compared to the Canadian index at
52%. So, investors who stay close to the Canadian index as matter of
risk avoidance do not necessarily have a credit quality advantage."
The study goes on to conclude that by staying only in Canadian sectors,
investors limit the substantial total return opportunities available in
global bonds. For example, the highest return investors have earned
from a Canadian Fixed Income sector is 16.3% from Canadian corporate
bonds in 2009. Other than 2009, Canadian bond market returns have been
in the single digits. By comparison, historical returns have been much
higher for global bond markets and sectors.
A full copy of the study is available at www.russell.ca
Founded in 1936, Russell Investments is a global financial services firm
that serves institutional investors, financial advisers and individuals
in more than 40 countries. Over the course of its history, Russell's
innovations have come to define many of the practices that are standard
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Russell delivers financial products, services and advice. A pioneer,
Russell began its strategic pension fund consulting business in 1969
and today is trusted by many well-known worldwide institutions for
investment advice. The firm has $154 billion CDN in assets under
management (as of 12/31/10) in its mutual funds, retirement products,
and institutional funds, and is well recognized for its depth of
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Date of publication: May 2011
SOURCE Russell Investments Canada Limited
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