Cat bond funds ranked among 2023's top-performing credit funds

investing.com:

By Nell Mackenzie

LONDON (Reuters) — Catastrophe bond funds rank among the 10 best performing credit funds this year, as the hurricanes, earthquakes and other disasters that could trigger payouts have either not happened or not been sufficiently severe.

The catastrophe, or cat bonds, represent money borrowed by insurance companies from capital markets.

If the insurance company needs that money because a specific event has taken place, investors might lose their initial outlay, but if the catastrophe covered by the bond does not take place, the bond retains its value.

Funds from Securis Investment Partners, Schroders (LON:SDR), GAM, Franklin Templeton K2 Advisors and LGT Capital Partners have all returned over 8% so far this year, among the bond funds that research firm Kepler tracks. It did not provide a year-on-year comparison.

Kepler tracks Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated like mutual funds and serve investors that want quicker, more transparent access to their money.

«The fund’s performance year-to-date is mainly driven by the current attractive reinsurance rate environment following the last few loss-heavy years,» said LGT Capital Partners which oversaw one of the top performing funds.

It pointed to a lack of any «major insured events», but added the fund held a diversified set of bonds with different categories of catastrophe and from different regions.

HURRICANE LOSSES AND HIGHER YIELDS

Last year, losses occurred from storms such as Florida's category five hurricane. So this year, cat bonds were issued with higher yields, thereby rewarding investors for holding them.

Peak hurricane season starts around September and U.S. hurricanes are one of the