After a dismal third quarter, bond investors are once again turning their attention to fixed income. A survey of European and Asian fund selectors forecasts a heightened demand for this asset class in the upcoming year, particularly with expectations of sustained equity market volatility.
The survey paints a cautiously optimistic picture among gatekeepers regarding the global economy and high-risk investments. The majority foresee a surge in volatility within equity markets in the coming year. However, opinions diverge, with over one-third of fund selectors forecasting a boost in global growth.
These findings are from PGIM Investments› Gatekeeper Pulse survey, which collated insights from 210 fund gatekeepers across the UK, continental Europe, and Asia. A significant 67 percent of gatekeepers are convinced that fixed income will reassert itself as a key counterbalance to equity market volatility. This anticipated pivot toward fixed income is underpinned by expectations of stabilizing interest rates and potential inflationary relief.
Interestingly, 54 percent of participants believe that, in a high-interest rate environment, public credit and public high yield offer more enticing risk-adjusted returns than private credit.
A notable 90 percent of gatekeepers pinpointed a peak in the rate-hiking cycle as a rationale for amplified fixed income allocations. Nearly as many cite decelerating inflation as a contributing factor. Subpar credit default rates are likewise a driving force for roughly three-quarters of the surveyed fund selectors.
Equity out of favour
Fixed income is firmly in the sights of asset allocators, with 58 percent planning to bolster their investments in this area over the next 12 months, in stark contrast to the 7 percent looking to scale back. Trailing behind in investment interest are private equity (17 percent), liquid alternatives (16 percent), private debt (15 percent), and equities (14 percent).
PGIM is a subsidiary of New Jersey-headquartered Prudential
Fixed income is the favourite
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