Grant, head of Asian Fixed Income at the firm, “strongly believes” that new benchmarks should be constructed that can adapt to changing yield levels.
He argues current methods fail end users and savers as yields remain low, even negative.
The origins of the issue have been traced back to the “policy experiment” of quantitative easing used by the Bank of Japan as well as the US, UK and eurozone, Grant said.
It led to a reversal of the principles of bond investment, instead effectively forcing investors to pay the government for the right to lend it money.
Grant said: “This current reversal in yields in several key markets represent a significant portion of these market capitalisation benchmarks.
“Yet the question remains, is anyone doing anything about this dislocation?
“We have asked ourselves whether using savers’ money to pay for the right to lend a government money is true to our responsible investment principles. Unsurprisingly, it is not.”
He added: “Simply, investors could store the money in a safe relatively cheaply and achieve a higher ‘real’ return over the term of an equivalent negative yielding bond.”
So, what can be done?
Grant recommends an alternate approach is to construct a dynamic benchmark more relevant to investor needs.
“Our analysis suggests that it is possible to construct benchmarks where the considerations such as market capitalisation are removed and criteria such as minimum credit rating, market accessibility and exclude those markets that are consistently yielding negative.”
