Our latest fixed income research highlights three trends that are shaping the future of fixed income: the growth of ESG, the continued move to indexing and the search for new sources of return.
ESG Integration Emerges as a Top Priority to Be Addressed Through Fixed Income
say their top ESG priority is to ensure all fixed income strategies meet the ESG threshold criteria set out in their policies.
are using Paris-Aligned benchmarks, making it the dominant approach by far.
Active continues to dominate fixed income, but it’s primacy is being eroded by investor needs, fee pressures, and a changing marketplace.
Now, over a third (37%) of investors say that more than 20% of their portfolio is now allocated to index and for the largest investors that proportion is even higher.
of investors with AUM over $10bn - have more than one-fifth of their portfolio allocated to index.
of respondents agree that they're 'under pressure to make more efficient use of fees' in fixed income.
Systematic is Coming Investors appear to recognize that the evolution of fixed income trading toward greater digitalization may be reducing the active opportunity.
On the horizon, and perhaps ultimately threatening the traditional dominance of active approaches, investors are showing interest in new, data-driven approaches to fixed income via systematic strategies. Larger investors are particularly likely to express a strong appetite for systematic fixed income strategies.
New Sources Under Consideration Investors are increasingly considering alternative sources of return. This is changing not only the outlook for traditional sectors but also adding liquidity risk and transforming the best approach calculus.
Reflecting market conditions, investors are seeking allocations that will help tackle inflation and more fully exploit available opportunities in their search for return.
Interest Is Especially Keen in Bank Loans and Inflation-Linked Bonds
Because of the unique attributes of exchange traded funds (ETFs) — their agility, efficiency, and transparency — more investors are increasing their use of ETFs to position fixed income portfolios in the new investment reality.
ETFs continue to prove their value in multiple ways, from managing liquidity risk and driving efficiency to implementing precise allocations and facilitating the in-house management of fixed income exposures.
State Street conducted a survey of 700 institutional investors in 2022. The global survey respondents came from pension funds, wealth managers, asset managers, endowments, foundations 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”.
Our 2021 fixed income research revealed what was driving institutional investors across the globe to adopt new ways of fixed income investing.