Global asset allocators are signalling a shift toward fixed income and cash as macroeconomic uncertainty continues to weigh on sentiment, according to research from asset manager PGIM.
According to the study, which surveyed 210 fund selection decision-makers at financial institutions across Europe and Asia, 37% plan to increase their public fixed income allocations over the next 12 months anticipating a rate-cutting cycle and more volatility. 14% of respondents said they expect to reduce fixed income exposure.
22% of allocators also anticipate boosting allocations in private credit, according to the survey. 43% of respondents expect stronger returns from public fixed income in the year ahead, while 34% anticipate improved performance in private credit.
About 32% of respondents expect to raise portfolio risk levels over the coming year, while 40% expect to tone it down. In Asia, both figures were 37%.
Geopolitical tensions, inflation and recession fears emerged as the top concerns, alongside an expectation that market volatility will stay on the higher side. About 39% of fund selectors/ asset allocators surveyed plan to put more money into cash or money market funds over the next year, while 20% expect to reduce their cash holdings.
Infrastructure was the top alternative pick, with 45% of respondents planning to increase allocations over the next year and just 7% expecting to cut back. Within private credit, middle-market lending remains a bright spot, though more than half of respondents expect competition to compress spreads in the months ahead.
26% of fund selectors expect equity returns to improve in the year ahead, while 45% estimate lower returns in public equity markets, according to the survey. Those constructive on the asset class are largely focused on global strategies, the survey found, though regional divergence is expected.
Real estate allocations are expected to stay stable, with investors showing home bias. European gatekeepers favour developed Europe, while their Asian counterparts prefer developed Asia.
Matt Shafer, the head of international intermediary distribution at PGIM, commented: “In a market defined by policy confusion and turbulence, clients are turning to fixed income for both steady income and critical downside protection,” Shafer says. “As market dynamics evolve, multi-sector strategies with the flexibility to pivot across bond segments based on relative value are seeing particularly strong demand.”
Despite recent market swings, Shafer expects demand for equities to stay strong—especially in areas linked to transformative tech. “Generative AI will reshape the global economy,” he says, adding that the next big opportunity lies in real-world AI applications as the investment cycle evolves.
