Institutional Investors’ Exposure to Investment Grade Bonds Expected to Rise

According to new research conducted by NN Investment Partners (NN IP)¹, more than twice as many institutional investors will increase their exposure to investment grade fixed income over the next three years compared with those who will decrease it. The study found nearly two in five (39%) of respondents believed institutional investors will increase exposure versus just 16% who believe it will be reduced.

The most common reason cited for this was the desire for – and the security of – the income (31%). One in four (26%) said it was because of the need to match liabilities while 22% said they expect market conditions to deteriorate and they provide a safe haven; another 17% said IG bonds generally have benefitted from enhanced liquidity.

Sylvain de Ruijter, Head of Global Fixed Income at NN Investment Partners, commented: “The anticipated rate rise in the US will be key for bond markets but our research shows that despite the low yield environment, the income from investment grade credit, as well as high yield credit, has again become attractive in the last few months, assuming the Western developed markets can avoid a sharp slowdown.

“However, markets can, and do, change rapidly. For many investors, the solution lies in partnering with managers of global fixed income strategies that have more flexibility than traditional bond funds and are managed by asset managers who have the ability to make active, high quality judgement calls.”

On average, respondents in the survey estimated that in three years’ time, inflation in the US will be 3.3%, 2.5% in the Eurozone and 3.0% in the UK. They said the US is currently at a recovery stage in its credit cycle (44%) while the EU and Japan were judged to be in a state of repair (63% and 51% respectively) and Emerging markets are in a downturn (44%).

Whilst yield challenges remain, NN Investment Partners believes that there are still fixed interest opportunities without investors having to ramp up risk levels. Institutional investors will benefit from a partnership with fixed income experts who have a proven track record of identifying opportunity in adversity and translating that into returns. Indeed, NN Investment Partners’ investment process is based on detailed analysis of long- and medium-term fundamentals,
aiming to provide its clients with consistently high yield.

NN Investment Partners’ fixed income boutiques have experienced management teams  consisting of portfolio managers, analysts and strategists. These dedicated teams have a global presence with locations in The Hague, New York, London, and Singapore. With a proven proprietary investment process that has been honed over more than 20 years, the award-winning investment team’s experience and expertise is combined with a client-centric process that forges a partnership with customers to help them meet their investment needs through a platform of innovative products.