Thomas De fauw

Donald Trump’s comeback in American politics is a reality. With a strong mandate from voters and a Republican-controlled Congress, he now has more leeway than in his previous term. Bond investors have reacted cautiously to last week’s election outcome.

Flexible allocation funds typically have broad latitude to adjust their asset allocation. Additionally, their managers have the freedom to add alternative asset classes to the mix, with gold being a well-known option.

Spreads on high-yield bonds are tight, and the fundamentals of high-yield look strong. Taking (credit) risks has clearly paid off this year.

Local currency bonds have lagged this year, but expected interest rate cuts by the Fed have investors in emerging markets hoping for better times.

Investors are spotting opportunities in defence companies, particularly given the continued military support for Ukraine and significant increases in European defence budgets. Long-term revenue prospects appear stable, driven by the ongoing maintenance of military equipment and the need to replenish supplies.

Trackers and index funds are the logical choice for investing in US government bonds. Indeed, within long-term dollar bonds, the scope for active management is limited.

The fortunes of corporate bonds seem heavily reliant on a ‘soft landing’ scenario, given the tight spreads. However, recent history reminds us that spreads can easily double during a recession.

High-yield bonds remain in demand among investors whose main focus is on absolute returns, this week’s Morningstar Fund Radar shows.

Emerging market debt investors believe that the overvaluation of the US dollar is at relatively extreme levels, while growth in emerging markets is higher than in more developed markets.

European high-yield bond spreads narrowed in May, driven by strong corporate earnings and investor demand, reflecting robust market confidence and providing a favorable backdrop for corporate refinancing and new issues. This edition of the Morningstar Fund Radar shines the spotlight on the Robeco European High Yield Bonds fund.