84% of institutional fixed income investors to increase risk appetite over next 12 months

Written by Adam Cadle

03/01/2024

Eighty-four per cent of institutional fixed income investors will increase their level of risk in the next 12 months with one in 10 making dramatic increases, as they boost overseas investments in search of extra return, new research from Aeon Investments has revealed.

Looking to the next three years, risk levels will increase further. More than a third (38%) of investors said they will make dramatic increases and 44% said they will make slight increases. Seventeen per cent of respondents said they expect to maintain current risk levels and 21% said they will decrease them dramatically.

The changing risk levels reflect respondents’ views on their funds’ allocation to overseas fixed income markets, Aeon Investments stated.

When asked to assess the credit/fixed income allocation of the funds they manage in terms of their local country market, just over a third (36%) of respondents said they have the weighting about right. Meanwhile, 8% of investors said they are very overweight; half said they are slightly overweight. Five per cent believe they are very underweight and 1% said they are slightly underweight.

Looking to the next three years, nearly nine out of 10 (88%) respondents said their portfolio will have a more global allocation to fixed income with 35% of those making dramatic increases to overseas markets. Twelve per cent of respondents will keep their allocations the same.

One-fifth of respondents believe their credit and fixed income investments are ‘very well aligned’ with their funds’ liquidity budgets, while half said they are ‘quite well aligned’. However, just under a quarter (24%) of investors said their credit investments are ‘much more illiquid’ and 6% said they are ‘slightly more illiquid’ than their funds’ budgets.

Khalid Khan, head of portfolio management, Aeon Investments, said: “Increasing global fixed income allocations maximises diversification across all markets and issuers, and can have a positive influence on the portfolio’s risk return profile. The same is true of incorporating a broad range of asset classes and sectors.

“Investors should seek a manager that offers experience and demonstrable track record across the fixed income spectrum.”

Aeon Investments commissioned the market research company Pureprofile to interview 100 senior investment managers at pension funds, insurance asset managers, family officers and wealth managers with a total of $544bn assets under management. Survey respondents are based in UK, US, France, Germany, Hong Kong, Italy, Sweden, Singapore, Switzerland, UAE, and Saudi Arabia.

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