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A clear shift in investor behaviour - the rapid turn of events surprised even this fixed income veteran
EVLI PLC PRESS RELEASE APRIL 11, 2024, AT 8:14 AM (EET/EEST)
A clear shift in investor behaviour - the rapid turn of events surprised even this fixed income veteran
The rise in interest rates has made fixed income investing particularly attractive to investors over the past year and a half. Interest for the asset class is on the rise. Mikael Lundström, Chief Investment Officer at Evli Fund Management Company, has noticed that investor enthusiasm especially towards corporate bond funds has grown quickly. Now, the fixed income expert with a long track record in the asset class highlights five points to consider when investing in bonds.
The popularity of fixed income funds is reflected in the latest fund reports from Finance Finland. As interest rates have risen, the amount of new money invested in long-term bond funds has increased significantly compared to the recent zero interest rate period, reaching 152 million euros in February. Corporate bond funds received the highest amount of new money among the long-term bond funds in February.
"There has been a significant change in investor behaviour in the last couple of years. A few years ago, when interest rates were low, there was virtually zero interest towards this asset class. I have been working with funds for almost 30 years, and such a quick turnaround is indeed quite rare," says Mikael Lundström.
Fixed income is now attractive regardless of wealth status - even a small stake can get you in the game
Evli has recently seen a trend of more people attracted to fixed income than before. According to Lundström, the first thing to do when investing in bonds is to examine what kind of investor you are, as your investment assets, return target, risk appetite and investment horizon all influence the construction of your portfolio, also when it comes to fixed income investing.
In particular, the amount of investment assets is a concern for those interested in fixed income. According to Lundström, many people may be under the impression that a large amount of initial capital is required to invest in fixed income.
"If you want to invest directly in bonds, that's true. Direct investments usually require an initial investment of around 100,000 euros per investment. And since it is advisable for the investor to diversify, that quickly adds up to very large sums. However, it is possible to invest in funds with as little as 50 euros per month. A fund that invests in several different fixed income categories, for example, could be a good option, which helps in diversifying your investments," says Lundström.
Diversification is something that has typically been discussed more in the context of equity investing, but Lundström points out that it also applies to fixed income investing.
"Even when investing in fixed income funds, it pays to diversify into different types of funds. For example, you can diversify by shorter or longer bond maturities, or by credit rating categories, or geography."
Lundström recently appeared on Finland's first fixed income investing podcast, where he highlighted five things that every investor needs to be aware of, right now:
1: Even when investing in fixed income, it's worth considering the type of investor you are. Your investment assets, return objective, risk appetite, and investment horizon all influence your portfolio construction in fixed income investing.
2: You can invest in fixed income through funds, starting with a monthly investment of as little as 50 euros per month.
3: It is worth familiarizing yourself with the players in the sector, as their experience, know-how and product offering will influence the content of the funds.
4: When investing in fixed income funds, it is advisable to diversify across different types of funds, for example, by bonds of varying maturities, or by different credit rating classifications or geographies.
5: The best time to invest in fixed income is when interest rates are falling, but it is worth remembering that the interest rate level at which you start investing is a good indicator of the kind of returns you can get. When interest rates are low, the initial yield level is low and vice versa.
You can listen to Mikael Lundström's visit on the "Kaikki koroista", ie. All about fixed income podcast produced by Evli here:
Spotify Apple Podcasts YouTube
EVLI PLC
Additional information:
Mikael Lundström
Chief Investment Officer, Evli Fund Management Company Ltd
Tel: +358 40 565 3036, mikael.lundstrom@evli.com
Evli Plc
We see wealth as an engine to drive sustainable progress. We draw on our heritage, broad expertise, and Nordic values to grow and manage wealth for institutions, corporations and private persons in a responsible way.
We are the best fund house in the Nordics1 and the leading asset manager in Finland2 offering a broad range of services including mutual funds, asset management and capital markets services, alternative investment products, equity research, share plan design and administration as well as Corporate Finance services. Responsible investing is integrated in every investment decision and our expertise is widely acknowledged by our clients. Evli has Finland's best expertise in responsible investment3.
Evli Group employs around 300 professionals and Evli has approximately EUR 18.0 billion in client assets under management (net 12/2023). Evli Plc's B shares are listed on Nasdaq Helsinki Ltd. More information at www.evli.com.
1 Morningstar Awards 2024 (c). Morningstar, Inc. All Rights Reserved. Awarded to Evli for the Best Fund House in Finland and Sweden. Lipper Fund Awards 2023, the category Small Fund Companies.
2 Kantar Prospera External Asset Management Finland 2015, 2016, 2017, 2018, 2019, 2021, 2022, 2023. Kantar Prospera Private Banking 2019, 2020 Finland.
3 SFR Scandinavian Financial Research Institutional Investment Services Finland 2017, 2019, 2021, 2022. Kantar Prospera External Asset Management 2017, 2018, 2019, 2020, 2023 Finland.
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