Asset allocators are favouring fixed income, as revealed by a study, with European and Asian gatekeepers anticipating robust demand for this asset class in the next 12 months.
The study by PGIM Investments found that over two-thirds of fund selectors expect fixed income to reclaim its traditional role as a portfolio diversifier against volatility, attributable to expectations of “peaking interest rates and reduced inflationary pressures”.
Asset allocators also showed preference for actively managed solutions. Despite ongoing uncertainty, 58% of gatekeepers plan to increase allocations, compared to 7% indicating a decrease.
Within fixed income, half of all respondents plan to increase positions in green bonds and investment-grade credit over the next year, followed by sovereign debt, with 43% of respondents. The regional difference among the allocators is noticeable in emerging market debt, with 51% of Asian gatekeepers set to increase exposure to the asset class versus 36% for their European peers.
While fund selectors plan to increase exposure across most asset classes in the next 12 months, there is a notable gap between fixed income and the next-highest area of demand, which is private equity at 17%, followed by public equity at 14%. Regarding equities, the primary target for increased allocation over the next 12 months is global equity, at 51%.
The study also revealed growing confidence in local markets, with 65% of Asian fund selectors increasing Asia-Pacific equity positions compared to 41% of their European counterparts. Conversely, 39% of European gatekeepers plan to increase their positions in European stocks, while only 24% of Asian selectors intend to do the same.
Additionally, findings revealed that carbon solutions-themed equity strategies are becoming prevalent. Gatekeepers intend to boost investments in liquid alternatives by a net 16% over the next 12 months, with global macro, long-short equity, and multi-alternative/multi-strategy being the preferred choices for additional allocations.
Matt Shafer, head of international distribution at PGIM Investments, commented: ‘We expect developed market rates to remain within the traditional long-term range of 3% to 5%. If this materializes, we anticipate investment-grade returns in the mid-single digits for the foreseeable future, with high-single-digit returns for higher-risk sectors.”
© 2023 funds europe
