Fixed Income: Preparing for the Big Shift

Our latest research uncovers four major trends transforming fixed income portfolios, revealing what is driving institutional investors across the globe to adopt new ways of fixed income investing.


The Move to Indexed Fixed Income


Low yields, new capabilities, and structural changes are driving a move towards indexing across the fixed income (FI) spectrum.


Planned Future Index FI Allocations, by Strategy   Over the next three years more than one-third of institutional investors plan to increase their allocation to index strategies for: High Yield, Developed Market Sovereign, Emerging Market Debt, Global Aggregate/Core, and Investment Grade Corporate.

Indexing North America
Indexing Europe
Indexing Australia

60+%

say that increased use of indexing is a high priority for both core and non-core FI exposures over the next three years.


38%

report that maximizing the impact of asset allocations is their key driver for index adoption.


33%

will make the move because they believe the opportunity to add alpha is in decline.


ETFs in the Fixed Income Toolkit


ETF performance during 2020 pandemic-related market stress highlights new investment possibilities for institutions.


Appetite for Increasing ETF Use in FI Portfolios, Core and Non-Core  Institutional investors have a strong appetite to increase the use of ETFs within their Global Aggregate/Core FI portfolios as well as in their Non-Core/Satellite FI exposures over the next three years.


68%

say that ETFs will play a bigger role in portfolio construction.


51%

cite ETFs' liquidity and price discovery benefits during the pandemic as key to their increased attraction.


71%

say they have a strong appetite to increase use of ETFs in their core fixed income portfolios.


ESG Moves Mainstream for Fixed Income


No longer only for equities, ESG is coming for fixed income in a major way.


Planned Future ESG Integration in FI Portfolio, by Strategy   Many segments of institutional investors’ fixed income portfolios will be prioritized for deeper/more comprehensive ESG integration over the next three years, led by High Yield and Investment Grade Corporate.


61%

say ESG integration into their fixed income portfolios is a high priority over the next three years.


50%

of European investors cite Best-in-Class as their preferred approach.


50%

of North American respondents cite Impact as their preferred approach.


China, EM Come Online


Most institutions will maintain or increase Emerging Markets exposure, and China's entry into key indexes is a rich source of potential.


EMD FI Strategies: Active, Index, or Combination   In the EMD space, institutional investors are most likely to use a combined active/index strategy for the EMD segment of their fixed income portfolio.


38%

of the largest, most sophisticated investors say that having a dedicated China fixed income exposure is a high priority.


27%

overall intend to increase their China allocation within the next three years.


42%

will increase their allocation to EMD over the next three years.


About the Survey


State Street Global Advisors conducted a survey of 358 institutional investors in May 2021. The global survey respondents came from pension funds, wealth managers, asset managers, and sovereign wealth funds. Their responses confirmed that the evolution in fixed income investing is very real and, in fact, that institutional fixed income investing could be at a tipping point where "evolution" will become "revolution."

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