In today’s markets, institutional-grade strategies are essential to unlock fixed income’s potential to deliver equity-like returns while diversifying risk, writes BNY Investments head of EMEA distribution, Gerald Rehn.
In today's market, bonds can offer equity-like returns with diversified risk profiles. Higher yields, new and growing segments such as private and structured credit, and increased issuance across traditional asset classes provide investors with tantalising new return opportunities. The challenge, however, is that it takes sophisticated, institutional-grade approaches to safely capture them.
After more than a decade of suppressed yields, fixed income has re-emerged as a compelling source of income and total return. Across global markets, return prospects have improved materially, challenging the long-held assumption that equities are the only route to attractive outcomes. Fixed income is no longer just a defensive allocation or portfolio stabiliser; done well, it can be a meaningful driver of risk-adjusted returns.
But this opportunity comes with complexity. Markets remain shaped by uncertainty — from geopolitics and fiscal policy to inflation dynamics and interest-rate paths. In fixed income, this elevates the importance of disciplined portfolio construction. Decisions around duration, issuer exposure, credit quality and liquidity are now central to outcomes, not secondary considerations.
This environment has reinforced the value of institutional capabilities: deep analytical resources, global reach, market access and robust risk management. These allow managers to diversify risk, identify relative value and adapt portfolios as conditions evolve — rather than relying on narrow macro views or a small number of directional bets.
The adviser view
BNY Investments' research highlights how advisers are already responding to this shift. In Shaping Tomorrow's Portfolios: The Strategic Role of Fixed Income study, advisers reported increasing allocations to fixed income between June 2024 and June 2025, with expectations of further increases through 2026. The outlook for interest rates was cited as the primary driver of change (55%), followed by inflation expectations (43%) and the relative value of bonds versus other asset classes (42%)1.
Confidence in fixed income is rising — but so too is awareness that implementation matters.
The expanding opportunity set reinforces this point. Growth in areas such as private credit and structured credit offers attractive diversification and income potential, but these markets demand specialist expertise, scale and rigorous risk controls. Without them, investors risk confusing complexity with diversification.
Active risk management
Active management plays a critical role. Despite this, more than a third of retail fixed income assets are managed passively — a higher proportion than in equities. Bond indices are often structurally inefficient, often rewarding the most indebted issuers rather than the most resilient. In markets such as high yield or emerging market debt, passive exposure can embed unintended default risk. Skilled active managers can exploit information gaps, avoid deteriorating credits and generate incremental returns through security selection.
Equally important is how risk is taken. Strategies built around diversified sources of return and position sizes aligned to conviction are better placed to navigate volatility than those dependent on "one big bet". This approach aims to deliver more consistent outcomes across a range of scenarios, rather than relying on being right about a single macro outcome.
Strong outcomes
Ultimately, fixed income must serve client objectives. Some investors prioritise dependable income, others capital preservation or flexibility. This is particularly relevant for those approaching or in retirement, where fixed income is evolving from a blunt income tool into a carefully engineered solution. While retail fund structures impose constraints, the industry is increasingly adapting institutional income-matching techniques for broader use.
With yields likely to remain structurally higher than in the post-financial-crisis era, fixed income offers an attractive risk-reward trade-off relative to equities. Yet advisers are right to remain cautious. Volatility and uncertainty are not temporary features of the landscape.
The message is clear: fixed income can deliver strong outcomes — but only when backed by the breadth, depth and scale of managers capable of navigating today's global bond markets. The best outcomes will go to those who treat fixed income not as a passive asset allocation, but as a sophisticated tool for achieving the outcomes clients value most.
A version of this article first appeared in Professional Adviser, a news and analysis website for financial intermediaries in the UK.
The value of investments can fall. Investors may not get back the amount invested.
1Research conducted by NMG Consulting for BNY Investments, based on responses to surveys with 125 fixed income-focused financial advisers between March and April 2025.
3185300 Exp: 5 October 2026
