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After a dramatic first half of the year where global high-yield bond funds lost 7.3 per cent of their value, the second half of last year saw a small gain of 1.4 per cent, in euro terms. The consensus among fund managers remains that despite recession fears, we will not see a wave of defaults in 2023 either. 

For this week’s Morningstar Top 5, we look at the best-performing funds investing in emerging market local currency bonds. These funds ended 2022 with a loss of 9.9 per cent, measured in dollars, or 4 per cent in euros. The outlook for this risky asset class does not seem favourable at first glance, although some fund managers say there are opportunities.

Infrastructure has become one of the topics we pay frequent attention to. It’s remarkable how often it comes up. But of you think about it, the global need for infrastructure investment, the attention paid by the political classes, the importance of the asset for the pension manager have combined to make this once dusty-seeming topic seem of the highest importance. The fact that it has the allure of being inflation-resistant has brought additional attention in these troubled times.

Quality companies possess characteristics that investors usually warm to, but this was totally different in 2022. In every quarter, the MSCI World Quality index lagged behind the MSCI World index, and in every quarter a loss was collected.  On balance, it was lower-quality stocks that beat the market in 2022. A top five low-quality equity funds.

Among the top five actively managed mutual funds in the energy sector that are tracked by Morningstar, the BGF World Energy and NN (L) Energy funds stand out as top performers when considering the year-to-date performance of this type of funds.

M&G said it will introduce an additional set of ESG exclusions to its M&G (Lux) Optimal Income fund managed by Richard Woolnough. 

Fund investors clearly lack faith in UK companies. There has been a net outflow from funds investing in UK equities over the past three years, with the €21 billion of outflows over the first three quarters of 2022 already setting a record. UK dividend stocks are being relatively spared by investors, but small-cap stocks, often more focused on the local economy, are being sold off in particular.

After two consecutive red quarters, global high-yield bond funds closed the third quarter with handsome gains. Yet it is premature to speak of a trend reversal.

Funds investing in emerging market bonds lost for the third quarter in a row when measured in dollars, but made a small gain in euros. 

The private loan market is being revalued. Risks are becoming more expensive and coupons are shooting up. Positive for pension funds and insurers that stay put until maturity, but investors in this category also sometimes have distressed moments.