Global expansion on the cards for fixed income investors seeking higher returns

By Newsdesk

January 09 2024
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In an era when investors are continually on the lookout for improved returns, a recent study by Aeon Investments has revealed a significant shift in the mindset of institutional fixed income investors.

Global expansion on the cards for fixed income investors seeking higher returns

The London-based credit-focused investment company's research, surveying pension funds, insurance asset managers, family offices, and wealth managers collectively handling assets of about $544 billion, found that a robust 84% of institutional fixed income investors are ready to embrace higher levels of risk in the upcoming year, with 10% preparing for substantial increases in their risk profiles.

This trend is not just a passing phase. Over the next three years, the appetite for risk seems to be growing even stronger. Around 38% of the investors surveyed anticipate making considerable increases to their risk, while 44% are looking at slight increases. Despite the move towards riskier portfolios, a cautious group remains, with 17% planning to maintain their current risk levels and a tiny fraction, 1%, suggesting dramatic decreases.

The survey underscores a critical shift in the way these investors are considering their credit and fixed income allocations. Presently, over a third believe their weighting in their local country market is appropriate. However, the global perspective is changing rapidly, with 88% of respondents planning for a more international allocation in their fixed income portfolios within three years. Of those, 35% are looking at significant increases in overseas exposure.

While the pivot towards global markets indicates a quest for diversified and potentially lucrative returns, alignment with liquidity budgets remains a delicate issue. A significant 24% of respondents stated their credit investments are 'much more illiquid' than their fund's liquidity budgets allow, a factor that could complicate the risk balancing act.

Aeon Investments' Head of Portfolio Management, Khalid Khan, provided insights into the research findings, highlighting the benefits of global diversification. "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." Khan further advised investors on the importance of partnering with adept management, noting, "Investors should seek a manager that offers experience and demonstrable track record across the fixed income spectrum."

As institutional investors recalibrate their strategies to incorporate global fixed income opportunities, it's clear that a shift toward a more adventurous yet potentially rewarding approach is on the horizon, signaling a dynamic time ahead for the financial markets.

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