ING Looks Abroad for Bond Returns (Part 4)

Terry Flanagan

This is the fourth of a six-part series profiling ING Investment Management’s bond business.

According to institutional-investment data provider eVestment Alliance, ING’s biggest institutional bond product is Stable Value, which had about $12 billion as of the fourth quarter of 2011.

Aiming to provide returns similar to intermediate-term bonds, but with lower risk, Stable Value “is not the most exciting investment but it provides clients access to yield that’s better than some alternatives,” said Matt Toms, head of U.S. public fixed-income investments. “This is an area in which there have been substantial inflows over the last three to five years, since the economic downturn.”

Senior Loan was ING’s next-biggest institutional fixed-income product at $9.5 billion, followed by Core Plus Fixed Income at $7.6 billion and Core Short Duration at $3.6 billion.

The Core Intermediate segment of the Stable Value product returned 7.17% annualized over the three years ended 2011, beating its benchmark by almost a full percentage point and ranking in the top 2% among comparable institutional offerings, according to eVestment Alliance. The five-year annualized return, which includes 2008, slips to 5.63%, less than the benchmark’s 6.09%; it still ranked in the top 13% versus competitors.

ING’s Senior Loan product returned 19.7% annualized for three years, in the top 20% of comparable institutional products, and 4.56% over five year, in the top 44%. Core Plus Fixed Income’s performance ranked at about the median over three years, but slipped into the bottom quintile over five years including 2008; returns improved to rank almost in the top quartile in 2011.

ING’s core fixed-income products “struggled” in 2008, when the collapse of Lehman Brothers and other events touched off a late-year cratering in the asset prices of most risky asset classes, according to Eric Przybylinski, senior research analyst at institutional-investment consultant Marquette Associates.

Hurtsellers took over the group in February 2009, and introduced improvements such as using a more consistent application of global-macro and business-cycle analysis across fixed income. “Their recent numbers have rebounded somewhat,” Przybylinski told Markets Media. “Their loan offering is solid, and they have a strong global bond product.”

ING’s offerings lean toward more suitable for bond investors with a higher risk tolerance, Przybylinski suggested. “For example, ING’s global product is multi-sector and benchmarked against the BarCap Global Agg,” he said. “Their performance compared to that benchmark has been strong but they have at times taken large relative exposures to high yield and emerging markets, which is something prospective investors should be aware of.”

ING’s core and core-plus products have comparatively high allocations to non-agency securitized products that can potentially generate excess return. With regard to systems and infrastructure, Przybylinski noted that ING has worked to build out its quantitative and risk-management capabilities over the past several years.

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