With inflationary pressures still evident and central banks taking a cautious approach to interest rates, new research from Rathbones suggests fund selectors are placing greater emphasis on active management within fixed income portfolios.
Interest rate uncertainty continues to shape fixed income allocation decisions, with fund selectors increasingly favouring active bond managers as they navigate changing market conditions.
Research from Rathbones found that 81% of fund selectors expect active fixed income managers to play a larger role over the next two years. Respondents cited the ability to actively manage duration and credit quality as key advantages at a time when inflation risks and central bank policy remain difficult to predict.
The findings come as investors continue to assess the implications of higher interest rates and the potential path of inflation in major developed markets.
Duration management emerged as a particular area of focus, with 27% of respondents describing it as essential and a further 69% saying it is very important when constructing fixed income portfolios.
The research, which surveyed IFAs, discretionary fund managers and private bankers responsible for a combined £234 billion of assets, also found strong support for flexible bond mandates. More than nine in 10 respondents (94%) said strategies capable of moving between government bonds, investment grade credit and high yield debt were attractive in the current environment.
Commenting on the findings, Bryn Jones, Head of Fixed Income at Rathbones Asset Management, said the results reflected investors’ desire for greater flexibility amid an uncertain outlook.
“Fund selectors clearly recognise that, in the current environment, active management has an important role to play in bond portfolios.”
He added: “With the path of rates and inflation still uncertain, the ability to actively adjust duration and credit exposure is becoming an increasingly important part of portfolio construction.”
The survey also highlighted concerns around credit markets, with 91% agreeing that active credit managers are better positioned to avoid asymmetric downside risk when credit spreads are relatively tight.
Currency management also remains an important consideration for global bond investors. Almost all respondents (96%) said they value the flexibility to hedge currency exposure within global fixed income allocations.
Jones said the role of active management extends beyond simply generating income.
“This is not simply about seeking income, but about being selective, managing downside risk and identifying where compensation is attractive.”
He added that the findings underline the value investors place on flexibility and specialist expertise as market conditions evolve.
For investment committees, the survey suggests that active fixed income management is increasingly being viewed not just as a source of returns, but also as a tool for managing risks associated with interest rates, credit markets and currency exposure at a time when the outlook remains finely balanced.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: building, buisness, vertical, company, verne-ho-0LAJfSNa-xQ-unsplash
