SYDNEY • Australia's third-largest pension fund is venturing further afield, joining others seeking refuge in places like Brazil amid the toughest investment outlook for global markets the firm has ever seen.

QSuper's chief money manager Brad Holzberger is buying Brazilian local currency bonds besides building positions in inflation-linked debt in the United States. For the first time since 2007, he is dipping his toe into credit, favouring swaps in credit spreads for his fund, which invests about A$62 billion (S$66 billion) in assets for Queensland government employees.

QSuper said surging prices in everything from stocks to bonds to commodities last year have reduced the chance of strong investment returns in the years ahead.

Higher-yielding bonds in emerging markets contrast with near- zero yields after inflation in advanced economies, attracting the likes of BlackRock and Amundi Asset Management.

QSuper is debating whether to lower its targeted returns, which it has already brought down to about 3.5 per cent yearly. "Every asset in the world looks a poor risk-return trade-off to us," Mr Holzberger said. "So the natural and logical reaction is to lower your expectations."

Emerging-market bonds are grabbing money managers' attention. Funds investing in developing- nations' debt drew almost US$2 billion (S$2.8 billion) of new investments in the week ending Jan 4, their biggest net inflow in three months, EPFR Global data shows.

Brazilian local currency debt has returned 4.2 per cent over the past three months. That compares with a 1.2 per cent loss for a gauge of emerging-market US dollar bonds.

BLOOMBERG