Inflation, rate rises, war, and crises of various stripes: A lot has changed in the world since we published Preparing for the Big Shift, our 2021 fixed income survey.
Our latest research finds that while investors are indeed adapting their portfolios to the backdrop of inflation and rate hikes in the short term, there are deeper trends shaping the future state of fixed income portfolios.
Executive Summary
Two of the key themes we reported on last year remain very much at the fore. First, ESG continues to rise in investors’ priorities, with a growing number of investors now pursuing Paris alignment within fixed income.
Second, indexing continues to prove its value. Fee pressure and continually improving transparency in fixed income markets are two factors causing investors to embrace these strategies and gain efficient access in sectors where they are increasing their exposure.
This year, we report on a group of nascent trends as investors look for new sources of return and new approaches to meeting their objectives. The shift toward private markets is intensifying, with implications for both the size and liquidity profile of public fixed income allocations. Investors are also showing an appetite for new, systematic fixed income approaches.
Collectively, these changes point not only to where fixed income is now, but also to where it is heading — and how investors globally will implement it in the near future.
About the Survey
The 2022 State Street Global Advisors fixed income survey canvassed the views of major investors across the globe to help better understand where the fixed income market is and where it is heading. The qualitative and quantitative survey was conducted in mid-2022 and was administered by an independent third-party firm not affiliated with State Street Global Advisors. State Street Global Advisors is identified as the study sponsor. A total of 700 global institutional investors responsible for asset-allocation decisions for top pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds participated in the study.
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Footnotes
1 See, for example, Fixed Income: Preparing for the Big Shift, State Street Global Advisors, 2021.
2 A YTD decline of 16.80%, as of June 30, 2022. Source: State Street Global Advisors.
3 640 bps, as of June 30, 2022. Source: State Street Global Advisors.
4 n=550. Only 12% of respondents disagreed with the statement.
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Originally Posted October 3, 2022 – The Future State of Fixed Income
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* Pensions & Investments Research Center, as of December 31, 2021.
† This figure is presented as of June 30, 2022 and includes approximately $66.43 billion of assets with respect to SPDR
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In partnership with FT Longitude, a Financial Times company. This survey was conducted in May of 2022 via an online survey instrument (n=700) and telephone interviews (n=5). Respondents were limited to senior leaders and senior portfolio managers who are directly involved in fixed income portfolio construction and investment decisions at pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds.
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Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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