Institutional investors could be missing out on fixed income returns, research reveals

Written by Adam Cadle

05/10/2023

More than two-thirds of global institutional investors and wealth managers say they are under-exposed to fixed income assets as yields continue to rise, research published by Managing Partners Group (MPG) has revealed.

Fifteen per cent of this group said they are very under-exposed and 54% revealed they are slightly under-exposed to fixed income, which is offering the highest yields since the global financial crisis hit in 2008. Just over a quarter (26%) said they have the right level of exposure to the asset class, and 5% said they are overexposed.

When asked what the top reasons are for holding allocations to fixed income, institutional investors and wealth managers selected a predictable income stream, followed by the return on capital, diversification benefits, and then the fact that bonds are lower risk than equities.

More than a quarter (28%) of those surveyed expect a dramatic increase to US investment grade and 45% expect dramatic increases to European investment grade bonds. Similarly, for Swiss investment grade debt, 41% predict dramatic increases. Allocations to non-investment grade debt, which is higher risk, are less in favour.

Jeremy Leach, CEO at MPG, said: “Bond markets suffered a bloodbath in 2022, with the value of global bonds falling by more than 30%; their worst performance in over 200 years, so it is understandable some investors have been under-exposed to fixed income. But as yields return to their highest levels for a decade and a half, and equities continue to look volatile with a recession on the horizon, it could be time to consider increasing allocations to bonds.”

MPG commissioned the market research company Pureprofile to interview 100 investment professionals working for pension funds, insurance asset managers, family offices, other institutional investors and wealth managers with a total of €245bn assets under management in the UK, US, Germany, Switzerland, UAE, Singapore and Hong Kong during July 2023.

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