Fixed income markets’ future divide institutional investors – NN IP

Institutional investors are split on the future of fixed income markets, a research led by NN Investment Partners (NN IP) reveals. Some 103 institutional investors have been polled in September 2015.

Three in 10 say the fixed income asset class will become more attractive over the next three to five years while 39% believe it will become less attractive.

As for future investment flows, 39% of the investors surveyed expect a significant transfer from bonds to equities if interest rates increase while 43% do not expect such a shift.

Around one in five (21%) expect their asset allocation to fixed income to increase and 25% expect it to decrease.

Sylvain de Ruijter, head of Global Fixed Income at NN Investment Partners, commented: “Rising interest rates will of course be painful for bond investors. If 10-year bond yields, for example, start to rise, that would lead to negative returns for a lot of bond funds. But looking forward, higher yields would mean better yield income in the future. It would be even worse if, in five years, we are at the same levels as today, because of what that says about the economy and about the effectiveness of policy makers.

“If rates rise significantly in the next five years, fixed income’s performance may not be spectacular, and equities may indeed outperform, but with greater risk. And more importantly, nobody knows if such a rate increase is going to happen. If you invest broadly and actively in fixed income, you can earn a decent return.

“What is clear is that rising interest rates following unprecedented quantitative easing means bond markets are entering new territory. Asset managers will need to show greater flexibility and have the capacity to assimilate a plethora of market data in order to make active management decisions. Those with the experience and ability to make high quality judgement calls in such markets will be key partners for institutional investors.”

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