Fund managers from Aviva Investors and Insight Investment speak to FT Adviser about the outlook for fixed income, saying returns are likely to come from bonds.
David Thorpe, senior investment editor at FT Adviser, is joined by Damien Hill, strategic bond fund manager at Insight Investments, and Aviva Investors multi-asset manager, Sotirios Nakos, to discuss where the next generation of bond market returns are likely to come from.
Fixed income has been a volatile asset class over the past five years, with the inverse correlation between bonds and equities breaking down.
But this year to date, government bonds have been resilient, even as equity volatility has ticked up, and with yields much higher than they were pre-pandemic, investors are pondering where the best value may be in the market.
The guests believe there is “value” in being overweight to fixed income right now, though the bulk of returns are likely to come from the income generated from bonds, rather than capital appreciation.
Hill said: “Stagflation is a challenge for central banks but it should be seen in the context of expansionary fiscal policy in most markets.
“I suspect bond yields will fall, but not by much, with no material recession. So that would lead to a bit of a drop in yields, but bonds are about harvesting the available income right now.”
Nakos from Aviva Investors, said: “Stagflation can mean a lot of different things, it can mean the wage spirals of the 1970s or something else.
“But we think inflation is quite anchored right now, and that wage growth is not an issue. That will allow central banks to prioritise growth instead.”
“There are a lot of disinflationary pressures in the economy as well. For that reason we are overweight to duration outside of the US, and are overweight to government bonds.”
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