Three months ago, Franklin Templeton’s Gulf Arab bond fund hunkered down for U.S. election volatility by seeking refuge in cash and only the highest-rated debt.
Now, even with the outcome of the vote undecided, it’s ready to pile back in, wagering money on some of the region’s riskiest securities.
“We are predisposed to take on risk,” said Mohieddine Kronfol, the firm’s Dubai-based chief investment officer for global sukuk and Middle Eastern and North African fixed income. “Once we get past these next few weeks, the market’s focus will be much more constructive.”
The change of tack underscores how investors, seeking to boost returns in a low-interest rate world, will shift their focus to the prospect of a U.S. fiscal stimulus package, a coronavirus vaccine and an improving outlook for growth once the election is out of the way. High-yielding bonds from the six-nation Gulf Cooperation Council, including the debt of Oman and Bahrain, are relatively cheap, setting them up for a rally in the coming months, according to Kronfol.
Kronfol turned defensive in August as Gulf Arab bonds ended a four-month rally, raising the proportion of cash in his GCC bond and global sukuk funds to about 12% from typical levels of 2% to 4%. The average rating of the securities held by the funds, which have combined assets of about $500 million, is currently around A-, compared with the portfolios’ typical average of BBB, he said.
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