Income-based returns are back, and investors no longer need to risk equity-type drawdowns or sacrifice liquidity to achieve their investment objectives. In our view, it is an opportune time to increase fixed income allocations.
As US equities continue to dominate the MSCI World Index with increasing concentration risks, fixed income markets offer potential for improved risk-adjusted returns and reduced volatility due to four key factors:
- Yield is back, and we believe it’s here to stay: Yields in many areas of the fixed income market are now close to – or even above – the long-term returns of the MSCI World Index.
- Yields are just the starting point for returns: Active management has the potential to exploit market dislocations in higher-return segments without compromising liquidity.
- More consistent returns, lower drawdown risk and diversification benefits: Income-based returns are more predictable, and bond markets have historically had far lower volatility than equity markets.
- Corporate credit fundamentals remain robust: The role of corporate treasurers is becoming more strategic. The resilience of corporate balance sheets and steepening yield curves further reinforce the strength of the asset class at this stage of the cycle.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
