A substantial 43% of institutional investors and wealth managers expect the correlation between bonds and equities to turn increasingly negative over the next 12 months, according to Managing Partners Group (MPG).
This is according to new research conducted by the international asset management company, MPG.
According to the research, respondents believed that the recent positive correlation between the two asset classes with both falling and rising together will reverse.
"Around one in three (31%) questioned in the research by MPG, which runs the Melius Fixed Income Fund, said they expect the correlation to become increasingly positive while 24% believed it will not change, and 2% were undecided," the survey found.
The research showed that fears of recession in major economies were however, driving increased interest in adding longer-duration core fixed income assets which offer a combination of portfolio diversification, an attractive yield, and capital appreciation.
"Around 69% questioned expect allocations to longer duration core fixed income assets to increase over the next 12 months with just 29% expecting allocations to be unchanged and 2% undecided," it said.
MPG CEO Jeremy Leach said: “Concerns that the global economy is heading for recession remain and that is driving a switch to longer duration core fixed income, but at the same time there is less concern about credit ratings and downgrades due to relatively robust corporate balance sheets if the economy does slow down.”
The MPG’s study found that professional investors believed that credit ratings and downgrades were more likely to align with historical trends rather than surpass them as the global economy slows down due to companies generally having more robust balance sheets.
"Around 90% of respondents agree that credit ratings and downgrades will be in line with historical trends while just 9% disagree and 1% are unsure," it said.
MPG said alternative asset classes in general were set to benefit from increased diversification as investors looked for reasonable returns while equities were set for a tough year ahead.
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