UPDATE 1-Japan retail investors flock to U.S. junk bonds
* Yield-hungry individuals flock to U.S. junk bond funds
* Nomura's high-yield bond fund quadruples to $4.4 bln
By Chikafumi Hodo
TOKYO, May 1 (Reuters) - Japanese individual investors have started actively investing in the U.S. junk bond market through mutual funds, hungry for higher yields after having been burned in the global credit crisis.
Demand has grown despite concerns about defaults, gaining momentum amid volatility in stock markets and ultra-low global interest rates, and helping U.S. junk bonds post their best start to a year since 1991. [ID:nN20416040]
The asset value of one of the most popular funds, the Nomura U.S. High-Yield Bond Investment Trust, has nearly quadrupled to 426 billion yen ($4.4 billion) as of April 30 since its launch in late January.
"We are seeing steady inflows into the fund," said Akihiro Watanabe, senior marketing executive at Nomura Asset Management.
"I think many investors wanted to get their money back after losses by investing in some other attractive products."
Japanese investors have been hit hard since Lehman Brothers failed in September, with the asset value of Japan's publicly placed investment trust funds plunging 37 percent to 51.5 trillion yen in March from a peak in October 2007.
Japanese individuals are estimated to hold more than $15 trillion in assets, according to central bank data.
Besides U.S. junk bonds, retail investors have also actively bought funds that invest in emerging-market bonds, Chinese stocks and commodities index and multi-currency-denominated Japanese stock funds since the start of the year.
Analysts said many Japanese retail investors are still licking their wounds from the financial crisis, but this could be a bargain-hunting chance for less affected investors and for those who have not invested heavily in the past.
"Nomura's marketing power has made it possible to attract such a big inflow into the high-yield bond funds. The funds were offered at the right time when investors were looking for higher returns and the junk bond sector matched their interest," said a manager at an asset management company.
"We can expect this trend to continue longer as the stock market remains volatile," he said.
Nomura Asset's fund has also been popular as investors' holdings can be in various currencies, which allows them to lift returns by hedging their currency exposure in high-yielding currencies, such as the Brazilian real and the Turkish lira.
Fears of a financial system meltdown triggered a 26 percent loss in U.S. junk bonds last year, pushing average yields to a record 22.7 percent. At those yields, the market was priced for a Depression-like scenario, leaving room for gains even if the economy remained weak.
Another popular fund has been a high-yield U.S. bond fund offered by Fidelity Investments Japan, which has jumped by more than 40 percent to 71 billion yen since the start of the year.
Nobuhiko Ohkubo, Fidelity's corporate communications manager, said the fund has sought to address concerns about defaults by diversifying across more than 320 bonds.
Credit rating company Standard & Poor's said last week the U.S. junk bond default rate will likely rise to 14.3 percent by March 2010 from 5.42 percent at the end of the first quarter this year. [ID:nN24447768]
The strong demand has prompted other firms to get in on the act.
Mitsui Sumitomo Asset Management offered a high-yield U.S. corporate bond fund on Thursday, gaining 4 billion yen in funds on the day of the launch. ($1=97.50 yen) (Reporting by Chikafumi Hodo; Editing by Chris Gallagher)
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