Sun Life Philippines, the local insurance arm of Canadian giant Sun Life Financial, plans to look at credit and private markets as part of broader asset allocation plans for 2023, a senior executive told AsianInvestor.
The insurer is also putting the final touches on a new ESG framework, which it has been developing recently.
“We would look into more onshore and offshore credits to improve both yield and duration of our portfolio,” said Ivan Corcuera, head of investments at Sun Life Philippines. “There may be some bias on offshore credits due to better availability and liquidity.”
The insurer is keen to diversify exposure away from bank names.
“This year, the focus will be on private deals since there’s not much juice in the public space and most issuances have really been on the short end,” he added.
“Alternative assets such as private fixed income and private equity are getting more traction in search for diversification from the shallow local markets in the Philippines.”
In this space, Sun Life is not alone. A recent survey by US investment manager State Street noted that Asia-Pacific institutions are keen on private asset markets as they seek greater asset diversification.
Private equity is the most attractive asset class, while interest in private credit also remains quite high, the survey showed.
The Philippines insurance unit of Sun Life manages about 250 billion Philippines pesos ($4.6 billion) in assets including traditional and variable universal life insurance products.
BONDS ARE BACK
Several insurers are poised to reposition their fixed income portfolios as the bonds landscape becomes increasingly attractive, according to industry experts.
While macroeconomic risks remain high, fixed income yields are at levels not seen in years, ranging from 4.8% for global investment grade to more than 8% for emerging markets and high yield.
An actively managed fixed income portfolio is likely to help Asian insurers navigate markets and generate good returns. That’s a change from 2022, when both bonds and equities suffered from negative returns.
In addition, the US dollar’s surge against foreign currencies is also expected to top off as the Federal Reserve eases on interest rate hikes which should encourage more portfolio flows in the region. A weaker dollar typically helps promote capital inflows to emerging markets.
“The US dollar may well find a peak around the middle of the year, which should usher in a more favourable outlook on liquidity and for US-dollar denominated bonds in Asia," said Sue Trinh, managing director of global macro strategy at Manulife Investment Management at a December 2022 press conference.
In general, Sun Life’s Corcuera expects lower volatility across all asset classes as interest rates adjust closer to their peak.
“These conditions should be more supportive of risk assets,” Corcuera said. “We can expect slow deployment of cash across risk assets and long-term bonds. Value can again prevail over growth as interest rates stabilise,” he said.
Much of Southeast Asia and India is also expected to sustain medium-term growth rates.
Indonesia Investment Authority Chief Executive Officer Ridha Wirakusumah also recently expressed high hopes for growth prospects of the Association of Southeast Asian Nations (ASEAN) group.
ASEAN experienced the highest GDP growth of 5.2% in 2022, ahead of the US, China, Japan and Germany, according to the Organization for Economic Cooperation and Development (OECD).
CHALLLENGED BY 2022
As with most asset owners, 2022 was a tough year for Sun Life, as almost all asset classes sank into negative territory.
“Since our portfolio is heavier in fixed income, the pace of increase in rates was not favorable to the portfolios,” said Corcuera.
In 2023, among the big concerns are a potential recession in the US and China’s reopening, which could either accelerate or further weigh down risk assets, he noted.
A reopening could lead to a surge in pent-up spending demand in the world’s second-largest economy – 1.4 billion consumers could lead to a rebound in global inflation for both commodities and goods, just as central banks start to ease off on the pace of interest rate hikes.
Investment managers have also warned about the ongoing risks of inflationary pressures, recession and stagflation - stagnating growth with rising inflation - since late last year.
ESG CHANGES COMING
The Sun Life group in Philippines including its asset management and insurance arms, is also continuing to develop its ESG framework for investments.
“We currently exclude tobacco and coal companies from our insurance portfolio, but we plan to follow an ESG integration approach when we invest across the broader portfolios,” Michael Gerard D. Enriquez, chief investment officer and president of Sun Life Investment Management and Trust Corp, told AsianInvestor.
“We are currently finalising our ESG scoring process with our regional team,” he said.
Enriquez previously handled the investments of Sun Life’s insurance business and domestic asset management business.
Sun Life Investment Management is a separate trust corporation under the group offering portfolio solutions to institutions and individual investors in the Philippines.
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