Many passive bond indexes are not well suited to an economic environment in which debt problems are more predominant and fiscal policy is stifling growth.
That’s according to PIMCO global co-head of emerging markets portfolio management Ramin Toloui who said investors needed to take an active management approach to asset allocation in building a strong investment portfolio.
Part of this portfolio rebalance is the need for income investments to play a larger role in a portfolio amid significant emerging market growth, Toloui said.
"Emerging markets account for more than a third of global economic activity and almost 70 per cent of global economic growth, but sit at only 4 per cent of the asset allocation of US investors," he said.
"Australians have always been more linked in to the emerging market story than any other industrialised market investors, but I think if you looked at their asset allocation they are also probably lower than optimal."
The International Monetary Fund’s ‘World Economic Outlook’ for September 2011 revealed that the gross government debt-to-gross domestic product ratios for developed economies had risen considerably compared to the declining ratio for emerging markets.
Toloui said this gives emerging markets much more flexibility and much more autonomy during periods of difficulty compared to the monetary constraints currently preventing a kickstart in the European and US bond market.
"It does not mean that they (emerging markets) are decoupled from what happens in the industrialised world but it means that they can respond with more degrees of policy flexibility and stimulate their domestic economies in ways that weren’t possible in the past," he said.
