Chief Portfolio Strategist Gaurav Mallik shares four key fixed income trends from our recent survey of institutional investors that together represent a big shift in how future fixed income portfolios will be constructed.
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.
say that increased use of indexing is a high priority for both core and non-core FI exposures over the next three years.
report that maximizing the impact of asset allocations is their key driver for index adoption.
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.
say that ETFs will play a bigger role in portfolio construction.
cite ETFs' liquidity and price discovery benefits during the pandemic as key to their increased attraction.
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.
say ESG integration into their fixed income portfolios is a high priority over the next three years.
of European investors cite Best-in-Class as their preferred approach.
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.
of the largest, most sophisticated investors say that having a dedicated China fixed income exposure is a high priority.
overall intend to increase their China allocation within the next three years.
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."
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
Standard & Poor's®, S&P® and SPDR® are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs. ALPS Distributors, Inc., member FINRA, is the distributor for DIA, MDY and SPY, all unit investment trusts. ALPS Portfolio Solutions Distributor, Inc., member FINRA, is the distributor for Select Sector SPDRs. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with State Street Global Advisors Funds Distributors, LLC.
THIS SITE IS INTENDED FOR QUALIFIED INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States or as otherwise qualified and permissible under local law. The information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-866-787-2257, download a prospectus or summary prospectusnow, or talk to your financial advisor. Read it carefully before investing.
Not FDIC Insured * No Bank Guarantee * May Lose Value