A forty year bull run on bonds could be at an end as institutional investors look to divest due to concern over rising defaults and reduced yield via inflation.
This is the finding from research commissioned by alternative investment firm Managing Partners Group (MPG).
It found that just over half (51%) of institutional investors plan to reduce their exposure to bonds this year. The majority (65%) cited the rising risk of default while 41% anticipate higher inflation.
A further 16% said they were “extremely concerned” that higher inflation would reduce bond yields.
For those institutional investors moving out of fixed income, alternative asset classes are the likely target. As many as 68% plan to allocate to real estate with 55% to hedge funds, 45% to commodities and 24% to equities.
Less than a quarter (24%) plan to increase their exposure to bonds.
More than half of the investors surveyed (52%) plan to redirect their bond investment to life settlements, US issued life insurance policies that have been sold by their original owners and are traded on secondary markets.
According to Gan Wyndham-Jones, MPG’s head of investments, the preference for alternative investments, and life settlements especially, is “hardly surprising” given the ability for returns to beat inflation and the lack of correlation with other asset classes
The research canvassed 105 global institutional investors between January 10-18.
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