Institutional investors currently expect an average yield of 3 per cent per year from their fixed income strategies in the face of “challenging” markets, according to new research conducted by NN Investment Partners (NN IP).
Expectations ranged from less than 1 per cent to more than 6 per cent.
The research, conducted amongst NN Investment Partners’ panel of institutional investment managers, revealed that 47 per cent described current market conditions for fixed income as “challenging” with one in eight respondents (12 per cent) describing it as ‘very challenging’.
Only 4 per cent of respondents believed that the environment was ‘easy’ for fixed income investors.
Meanwhile, 42 per cent of respondents stated that it is difficult for fixed income fund managers to generate positive performance throughout the interest rate cycle, compared to 27 per cent who believe that it is easy.
Sylvain de Ruijter (pictured), Head of Global Fixed Income at NN Investment Partners, says: “The environment for fixed income investment isn’t easy, but it never is. The challenge is doing it optimally. In the ‘safe’ parts of the fixed income world, returns are indeed very low. Yields on high-quality government bonds in many G-10 countries, for example, are below 1 per cent. But if you move up the risk scale, you see there are also pockets with attractive yields of more than 7 per cent.
“There are plenty of opportunities, but you need prudence and expertise to achieve optimal diversification and the right risk-return trade-off. By investing with an experienced asset manager, investors can make use of experts in all facets of the fixed income market who can add value through active positions. A diversified portfolio with active risk can result in decent returns over a period of several years.”
Whilst yield challenges remain, NN Investment Partners believes there are still fixed interest opportunities without investors having to ramp up risk levels. Institutional investors can 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 and has been honed over more than 20 years, aiming to provide its clients with consistently high yield.
De Ruijter adds: “Interest rates have been at record lows following a period of slow global growth, leading to an unprecedented investment landscape. With rate rises posing challenges to markets around the world, it is imperative that investors have a defined strategy to mitigate risk and exploit the right investment opportunities. Our base case remains a ‘dovish rate hike’ from the Fed this year, provided market turmoil does not return with a vengeance.”
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.
