Shifts in geopolitical landscape and fiscal deficits impact the preferences for UK government bonds
In a recent survey conducted by TwentyFour Asset Management's fixed income investor survey, it has been revealed that UK institutional investors are adjusting their allocation strategies in response to global geopolitical tensions and government deficits.
The main drivers for this shift include the ongoing war in Ukraine, instability in the Middle East, and US trade and fiscal policy under the Trump administration. Despite recent sell-offs in sovereign debt, almost nine in ten investors plan to either maintain or increase their government bond allocations over the next year.
84% of respondents expect fixed income to outperform cash in the medium term. Among those maintaining an interest in private credit, asset-based lending is the preferred segment. Sustainable bond funds are most likely to capture a greater portfolio share, with nearly 90% of investors expecting to increase assets dedicated to sustainable strategies over the next 12-24 months.
Ben Hayward, CEO of TwentyFour Asset Management, commented that elevated yields in fixed income can improve returns and provide portfolios some protection against volatility. Active managers can prove their worth by targeting the right opportunities while managing the broader market risks, according to Ben Hayward.
The survey also reveals a growing trend among UK institutional investors to bridge the fixed income-tech gap. However, the survey did not provide specific details about how investors plan to implement their sustainable strategies or private credit adjustments, or how they plan to bridge the fixed income-tech gap.
61% of the 200 UK institutional investors surveyed have changed their risk appetite due to geopolitical tensions, with half moving to more defensive positions. UK assets currently make up nearly half of institutional portfolios, and this share is expected to increase over the next year as more than half of investors plan to shift money away from the US due to policy uncertainty.
76% of the surveyed investors believe government deficits will play a role in their allocation decisions this year. Among investors planning to adjust private credit exposure, most intend to reduce allocations, with 55% of investors planning to do so.
In conclusion, the survey results indicate a continued interest in fixed income investments despite geopolitical tensions and government deficits. With a focus on sustainable strategies, private credit, and bridging the fixed income-tech gap, UK institutional investors are adapting their portfolios to navigate the current global economic landscape.
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