Insights Investment

The collapse of Wirecard serves as an example of the need for stronger governance. After many years of integrating analysis of ESG risks into investment decision-making, we believe there are important lessons for fixed-income investors to learn… there is no broad-brush approach to ESG analysis… different ESG data providers offer varying assessments, with inconsistencies, gaps and potentially misleading ratings.

The events in March and April caused a sea change in market risk awareness. The system is very highly levered, there’s no real political appetite to restructure debt, and it’s clear that the Fed is going to keep rates low for a long period of time. The solution out of these problems is becoming much more political than market driven, which is a very different environment than we were previously in. It’s now much more important than ever that you develop LDI.

Alex Veroude, chief investment officer for Insight Investment North America, thinks bond spreads most likely give a more accurate view of credit risk than bank provisions. “The question is, where are the defaults?” he asked. In the second quarter, credit card defaults declined, while commercial and mortgage defaults barely rose. Mr Veroude thinks monetary and fiscal support have been sufficient to halt the credit cycle before it turns down. “The government programmes have stalled the [credit] rollercoaster at its highest point,” he said.