Eighty-six percent of institutional investors and wealth managers believe a bond rally is likely within the next two years.
More than four-fifths of institutional investors and wealth managers anticipate major outflows from equities into fixed income.
New research from Managing Partners Group’S (MGP), the international asset management company surveying institutional investors and wealth managers worldwide with assets of €245 billion under management*, found that nearly a quarter (23%) think it is very likely we will have a bond rally in the next 24 months, with 63% saying it is quite likely. Three percent believe it is unlikely, while 11% didn’t know.
Meanwhile, 82% of respondents expect nervous investors to continue to exodus equity funds in favour of fixed income funds. Almost two-thirds (65%) of respondents say the huge outflows from stock markets in recent weeks will increase slightly, while 17% expect dramatic increases. Just two percent say the outflows will decrease, and 16% say they will stay the same.
The move from equity to fixed income funds reflects a belief that bonds are at the start of a bull run. More than four-fifths (81%) say this is where the market is headed; 10% disagree, and nine percent didn’t know.
When asked to pick which fixed income sectors will benefit most from a returning bull run, institutional investors and wealth managers chose US Government bonds, followed by EU government bonds, US non-investment grade bonds and then EU investment grade.
The MPG’s Melius Fixed Income Fund, which invests in corporate, high yield and inflation linked bonds, for example, has returned 7.04% in the 12 months to July 2023, outperforming the iShares Core US Aggregate Bond benchmark by 10.78% over the period, benefiting from an exposure to fixed income in the USA, UK, Europe and Switzerland. The fund has returned 22.14% since launch on 31 October 2019. Melius has a yield driven investment strategy that carries less pricing sensitivity to interest rate movements.
Jeremy Leach, Chief Executive Officer at MPG, said: “A bond rally is more than likely as inflationary pressures start to ease and central banks are easing off with interest rate rises. There are clear return opportunities for investors in developed market investment grade fixed income which will in turn lead to a bull run in the sector.”