The magic of active management: MGP provides the keys for investing in fixed income

Fixed income is once again a feature of investors’ portfolios, after years of having been disregarded on account of zero or negative interest rates. This situation has changed drastically, and increases in interest rates by central banks have made this type of asset attractive once again, piquing the interest of investors. In fact, according to the most recent data published by Inverco, fixed-income funds raised 2.12 billion euros in March alone, taking the figure to 7.91 billion euros so far this year.

To this end, MAPFRE Gestión Patrimonial organized a meeting with a group of investors in Madrid, at the Fundación MAPFRE headquarters, to discuss the opportunities and risks of this asset class, at which Daniel Sancho, head of investment at MAPFRE Gestión Patrimonial; Ismael García Puente, MGP fund manager and selector; Luis Beltrami, director of fund sales at Flossbach von Storch, and Juanma Jiménez, head of Pimco for Spain and Portugal were all in attendance.

The manager of the MAPFRE Gestión Patrimonial office in Madrid, Alberto Belinchón, highlighted that, since the start of the year, conversations with customers have been about fixed income: guaranteed funds, treasury bills, monetary funds, etc.

“Fixed income is once again a fixture of portfolios. Last year saw major turmoil, with sky-high interest rates, resulting in losses. However, in 2023 this offers great opportunities,” he asserted.

Sancho highlighted the importance of information, given the sophistication of fixed income markets. “At MGP, we strive to ensure that every day, customers, agents, intermediaries, and we ourselves understand what we are communicating. In particular, that our customers really understand what is going on,” offering a reminder of the losses incurred by those who invested in fixed income portfolios last year.

The head of investment at MAPFRE Gestión Patrimonial explained that there are three elements that customers must bear in mind before investing in fixed income. The first is the Interest Rate of Return (IRR), in other words, the profitability of the investment upon maturity.

“This figure contains a lot of information,” asserted Sancho, as not only does it indicate the returns, but also the risk the saver is exposed to: a high IRR could indicate that the company could experience problems meeting its financial obligations.

Accrual is the second concept touched upon by Sancho. This refers to the income that a bond generates over time, provided it is held to maturity. And thirdly, the modified duration, which measures the price sensitivity of a bond to interest rate fluctuations.

Harnessing the interest rate curve

The interest rate curve is another thing that savers must bear in mind when investing in fixed income. “The longer the term, the more they will have to pay me. If I invest money in Germany over 10 years, they will have to pay me more than if I invest for just one year. That is currently not happening, rather, the curve has inverted,” reported the head of investment at MGP.

In Sancho's opinion, this investment provides a lot of information about the current context: it indicates that the market is "confused" by the possible consequences that interest rate increases could bring about.

"This is an opportunity from the perspective of advice, for customers who want to start investing, who have some savings and who want to start making them profitable," he said.

Get used to higher inflation

García Puente mentioned the difficulty in predicting inflation rates at present, an issue that has been at the heart of economic news in recent months and that now, following the banking crisis, has "returned to the fore."

“We should start to prepare ourselves for a situation where inflation will be higher than it has been over the past decade,” he asserted.

The terminal rate, that is, the percentage up to which central banks are willing to raise interest rates, has also shifted and is something that investors in fixed income have to take into account.

A full offensive to attract 12,000 customers

MGP’s strategy involves increasing the number of customers by at least 20% in 2023 and reaching 200 agents from the 170 it has at present.

At present, MGP manages around 1.5 billion euros and has offices in Madrid, Barcelona, Valencia, Bilbao, Seville, Málaga, Zaragoza, and Palma de Mallorca.