Institutional fixed-income investors are willing to take on more gambles in the year ahead, boosting the risk profile of their investment strategies amid predictions of a looming recession in 2024.
According to a study by Aeon Investments, 84% of fixed income investors plan to increase their appetite for risk and diversify overseas in the next 12 months while 10% expect to do so dramatically.
This renewed appetite for risk comes as industry veterans such as Jeremy Grantham and ‘Big Short’ investor Michael Burry have stuck by their predictions that the world could be teetering on the edge of a global recession, forecasting the bubble will burst across multiple assets.
London-based credit-focused investment company Aeon surveyed pension funds, insurance asset managers, family offices, and wealth managers who collectively manage around US$544 billion.
The survey revealed that 15% of investors will maintain their current risk levels, while only 1% intend to significantly decrease risk levels in the year ahead.
Over the next three years, appetite for risk among fixed-income investors is expected to rise even further, with 38% of investors planning dramatic increases and 44% planning slight increases.
The changing appetite for risk among investors reflects managers’ views on their funds’ allocation to overseas fixed-income markets, according to Aeon.
Fixed-income securities such as bonds, other credit or debt investments, and asset-backed income are typically viewed as lower-risk investments than stocks, making them attractive during times of uncertainty.
Khalid Khan, Head of Portfolio Management at Aeon Investments, said: “Increasing global fixed income allocations maximises diversification across all markets and issuers, and can have a positive influence on the portfolio’s risk return profile. The same is true of incorporating a broad range of asset classes and sectors.”
More than a third, or 36%, of survey respondents said they believed they had the right weighting across their credit and fixed income allocations in their local market, while 8% considered themselves very overweight in their home market, and half slightly overweight.
Nearly 90% of respondents said their portfolio will have an increasingly global allocation to fixed income over the next three years, and 35% plan a dramatic increase to overseas markets.
A fifth, or 20%, of respondents said their credit and fixed-income investments are ‘very well aligned’ with their funds’ liquidity budgets; while nearly a quarter, 24%, said their credit investments are ‘much more illiquid’ than their budgets.