Broaden the opportunity set and manage risks by looking beyond Canadian and U.S. bonds, says Amundi’s Reine Bitar, who comanages the NEI Global Total Return Bond Fund.
Summary:
Diversification in portfolios is always sensible, but the specific risks facing today’s fixed income investors may make it especially important to hold an unconstrained, actively managed mix of global bonds.
Geopolitics has become very unpredictable. Central banks’ policy decisions are less certain, too, as many countries struggle with rising inflation at a time of slowing growth. Meanwhile, capital is on the move, experiencing a structural reallocation into AI and defence spending.
All of this has reanchored political and commodity risks as persistent macro drivers, says Reine Bitar, Senior Portfolio Manager of the Global Fixed Income Team at Amundi, which advises the NEI Global Total Return Bond Fund.
“We believe the current regime of higher macro dispersion, sticky inflation, and concentrated equity risks — and where policy responses are becoming more regionally differentiated — elevates the strategic case for global fixed income strategies.”
Yet Canadian investors’ fixed income allocations are often highly concentrated in domestic bonds. There are many reasons for this, including a behavioural preference for the familiar in what has traditionally been a safer part of an investor’s portfolio. Institutionally, domestic bonds may be held to match local liabilities and minimize tracking error against local benchmarks. In fact, it was recently reported that Canadian institutional investors keep 95% of their fixed income holdings in Canadian securities.[1]
“While all of these rationales seem valid, sticking too close to home does limit the opportunity set — potentially missing out on higher yields or better credit quality elsewhere — and can introduce concentration risk within the investment portfolio and hinder long-term performance,” says Bitar.
She points out that central banks’ responses to the potential for stagflation won’t all be the same. Each institution will make decisions based on local factors, and variations in policy will create yield, currency, and credit spread dispersion.
For example, Canada isn’t as vulnerable to the upswing in oil prices. Because we’re a net energy exporter, higher oil prices will boost income and may lead to higher spending and investment. On the other hand, as in many countries, household consumption will still be under pressure, with negative implications for growth. Because our situation is distinct, our central bank may make different choices than central banks in countries that are less insulated from the impact of the shift in the price of oil.
At the same time, the Canadian bond market diverges from many other bond markets because of its sensitivity to a heavily leveraged housing sector and a concentrated banking sector. This makes Canadian bonds highly reactive to changing monetary policy, widening credit spreads, and economic shocks. The market is also dominated by a few large entities — the federal government, provincial governments, and large financial institutions — which limits opportunities for diversification.
Bitar notes that the NEI Global Total Return Bond Fund has an underweight position in Canadian bonds because it’s finding better potential for investors elsewhere. As a result, this fund can complement an existing domestic-centric fixed income allocation.
Many funds less “global” than expected
One challenge for investors seeking greater geographic bond diversification is that not all “global” funds are created equal. It’s important to look under the hood because many have allocations of 80% or more to U.S. bonds. This is partly because the U.S. bond market is the largest and most liquid in the world and partly because so many fund managers are based in the U.S.
In contrast, the NEI Global Total Return Bond Fund — advised out of Amundi’s London, U.K., office — has an unconstrained global fixed income mandate that provides exposure to developed sovereign curves, supranationals, agencies, and investment-grade corporates, with selective emerging markets and sub-investment-grade exposures where fundamentals and liquidity permit. In general, U.S. bonds comprise just 15% to 18% of the fund.
Starting with a macro analysis of global growth and inflation dynamics, monetary and fiscal policy responses, and geopolitical drivers, the team members seek to generate alpha through duration, curve positioning across sovereign and corporate credit, and currency strategies. Their flexible tool set includes the active use of futures, swaps, and options to hedge rate risk and get efficient exposure to parts of the fixed income markets without large cash commitments.
Bitar emphasizes that foreign bond exposures are fully hedged back into the Canadian dollar so investors don’t have to worry about introducing currency volatility to an asset class they often choose for its lower risk.
In a time of heightened volatility and fragmented markets, a fund like this can be a good option as a core global fixed income holding. It doesn’t have the concentrations inherent in the Canadian bond market. It isn’t dominated by the U.S. bond market. And it provides the potential to capture relative value opportunities across rates, credit, and effects.
“It is a global, high-quality strategy that offers a wider opportunity set to source carry and relative value [trades], with the ability to diversify away from home market exposures while having tactical flexibility to respond to policy divergence and commodity shocks.”
For more information, please visit Being Global Matters page.
[1] Josh Welsh, ‘Uncompensated risk’: Investor home bias is warping Canadian fixed income. Benefits and Pension Monitor, January 30, 2026.
