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Institutions and wealth managers favour fixed income over equities, research shows
Invest
Institutions and wealth managers favour fixed income over equities, research shows
New research from Managing Partners Group (MPG), the international fund management group, shows professional investors believe fixed income is becoming more attractive than equities over the next 12 months.
Institutions and wealth managers favour fixed income over equities, research shows
New research from Managing Partners Group (MPG), the international fund management group, shows professional investors believe fixed income is becoming more attractive than equities over the next 12 months.
Almost all (94%) questioned in the global study with institutional investors and wealth managers holding assets of €107 billion under management say fixed income is more attractive, with 17% saying it is becoming significantly more attractive.
The research by MPG, which runs the Melius Fixed Income Fund, found growing worries about a global recession and increased volatility in the equity markets, plus increased correlation between bonds and risk assets, is driving the shift in views.
US investment grade and European investment grade fixed income assets are likely to be the biggest beneficiaries of institutional investors and wealth managers increasing their exposure to fixed income, but all asset classes will benefit.
The study found that 79% of investors are increasing exposure to US investment grade fixed income over the next 12 months, while 78% are increasing exposure to European investment grade.
For Swiss investment grade, 72% are increasing exposure, and for Swiss non-investment grade, 74% are increasing exposure.
European non-investment grade and US non-investment grade are also seeing increased exposure, with 69% and 48% of investors increasing exposure, respectively.
Professional investors still believe there is a possibility of a bond rally if major economies slip into recession.
Around 20% believe a bond rally is very likely in the next 12 months, rising to 42% saying a bond rally is very likely over the next 24 months.
Around 79% think a bond rally is quite likely in the next 12 months, while 57% believe it is quite likely over the next 24 months.
MPG has added Life Settlements to its Melius Fixed Income Fund, which invests in corporate and high yield bonds, targeting up to an equal split between life settlements and other assets.
Life Settlements are US-issued life insurance policies that have been sold by the original owner at a discount to their future maturity value.
They have little or no correlation to equities or bonds and currently deliver an inflation busting yield of 12%.
MPG says alternative asset classes in general are set to benefit from increased diversification as investors look for reasonable returns while equities are set for a tough year ahead.
"Fixed income assets are moving up the investment agenda with investors increasingly expecting continued volatility in the equity markets," said Jeremy Leach, Chief Executive Officer at MPG.
"In addition there is growing evidence that bonds are becoming more correlated with risky assets including equities.
However, if major economies do slide into recession that will increase the likelihood of a bond rally if not in the next 12 months, then in the next 24 months."
MPG's Melius Fixed Income Fund has returned 7.72% in the 12 months to January 2024, outperforming the iShares Core US Aggregate Bond benchmark by 5.39% over the period, benefiting from an exposure to fixed income in the USA, UK, Europe and Switzerland.
Melius has a yield driven investment strategy that carries less pricing sensitivity to interest rate movements.
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