Last week we published the latest findings from the most recent Asset Allocator sentiment survey, with a particular focus on equities.
A feeling of uncertainty prevails at the moment — for instance, 50 per cent of our respondents are neutral on US equities, with just under one-third expressing outright negativity on the outlook for this particular region.
This week, it’s time to dissect the attitudes towards fixed income among our survey respondents.
Of course the fixed income universe is pretty diverse.
To start with, the mood surrounding government bonds is more or less unchanged since we last checked in October 2024: one-third of DFMs surveyed were positive, while just over half of them were neutral on sovereign paper.
Gam told us they like short-dated bonds but not the directional risk that came from owning long-dated assets.
“Volatile equities demand reliable offsets even if they look unimaginative,” said Julian Howard, their chief multi-asset strategist.
City Asset Management was rather upbeat here: “We recognise that the asset class is not just a diversifier, but a true source of alpha, which is leading to a renaissance for fixed interest managers,” said James Calder, their chief investment officer.
The team at Casterbridge, however, has gone underweight government bonds as they see ‘growing debt burdens and uncertainty around the future path of inflation’.
One area that’s seen a marked improvement is in the world of high yield, where previously allocators had been majority pessimistic.
This has now shifted to neutral, with 44 per cent of DFMs neither underweight nor overweight.
Given equity volatility has increased during the past few months, perhaps this indicates a shift into the more risky end of the credit spectrum to obtain those similarly adventurous returns.
Tacit Investment Management typically uses high-yield bonds for this purpose and previously had a 15 per cent exposure to these products.
This has since been cut to 7.5 per cent, but that’s still significantly higher than our DFM average of 1.5 per cent (given many allocators avoid it entirely).
Gam, however, is not one to dip their toes in that particular pond.
“We see this as slightly deleveraged equity risk and too tied to the economy,” Howard added. “Spreads have unsurprisingly widened in recent weeks. That’s not diversification.”
Finally, strategic bond funds have gone up in allocators’ estimations, with half of all respondents now positive on the asset class.
But this does not include the team at Portfoliometrix, who prefer to keep their fixed income exposure firmly segregated.
“A lot of our peers like strategic bond funds, but it’s so hard to model where your risks are going to come from,” said chief investment officer Alex Funk.
“It could be high yield today, credit tomorrow, or duration on Friday.”
