Over two-fifths of pension funds expect fixed income performance to deteriorate over next year

More than two fifths (43 per cent) of pension funds and other institutional investors expect fixed income performance to deteriorate further over the next 12 months, with 13 per cent expecting a significant decline, according to Aeon Investments.

This research comes after global bond markets suffered ‘significant losses’ in recent months.

More than a quarter (28 per cent) of pension funds believed performance in the fixed income market will improve.

Aeon’s research of pension funds and other institutional investors in Europe and the US also found that 62 per cent of those surveyed expected institutional investors to reduce their exposure to fixed income over the year, and 11 per cent expected them to increase it.

When asked about the institutions they work for, 48 per cent expected them to reduce their exposure by over 10 per cent this year, with a further 38 per cent anticipating a reduction of up to 10 per cent.

For the institutions they for work, 15 per cent of those interviewed believed they would reduce exposure by up to 5 per cent, 23 per cent believed it would decline by between 5 and 10 per cent, 32 per cent believed it would decrease by between 10 and 15 per cent, 12 per cent believed it would fall between 15 and 20 per cent, and 4 per cent believed it would decline by over 20 per cent.

Aeon Investments chief executive officer, Oumar Diallo, commented: “The fixed income market has endured a difficult time, and the current macro-environment points to continued struggles for large parts of the market.

“Many investors are reallocating to other asset classes, especially those that provide a degree of hedging against inflation such as commodities, and others that provide an attractive higher yield but in a relative low-risk environment such as structured credit.”

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