There are many interesting opportunities in the trade finance asset class, as David Newman, CIO Global High Yield, Head of Public & Private Solutions at Allianz Global Investors, explains in this partner content analysis.
Trade finance funds much of the commerce economies are built on – and it is also becoming an increasingly crucial part of many investors’ portfolios. In the shorter-term, it can help investors plot a path through a shifting landscape of higher interest rates and slowing growth. And longer-term, the asset class can provide a compelling proposition for several reasons, ranging from its lack of correlation to other asset classes to its low volatility.
Key takeaways
- Providing a bridge between the delivery of products and payment, trade finance helps keep commerce moving – and global demand for the funding is huge, estimated at USD2.5tn.1
- For investors, trade finance can serve a variety of roles – from an alternative to traditional credit assets to a strategic cash position, offering favourable returns compared to money market funds.
- Higher interest rates mean investors can expect a higher yield than in years when rates were near historic lows, while the asset class is also benefiting from inverted yield curves.
- In a fluid economic environment, trade finance’s typically short-term horizon allows flexibility as conditions change, while in the longer run the asset class’s potential for stable returns and low volatility make it an attractive option.
How to negotiate a changing economic landscape while meeting long-term goals: that’s the challenge facing many investors. So, where to turn? Trade finance, a USD4tn asset class2 funding a broad array of commerce, may help a range of investors meet their objectives.
In a shifting economy, trade finance stands out as a resilient option. It provides stability and a low correlation to traditional asset classes – vital during swings in public markets. The higher yield it offers may help boost portfolio performance in the long term. Finally, the asset class’s versatility is also a boon, serving as an alternative to short-dated fixed income, private debt or as a strategic cash position.
1 Source: Global Trade Finance Gap Expands to $2.5 Trillion in 2022, Asian Development Bank
2 Source: Global Trade Finance Market Size, 2023, Mordor Intelligence
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