State Street Global Advisors’ Survey Highlights Allocation
Toward Fixed Income Index and Alternative Investment
Strategies
State Street Global Advisors, the asset management business of
State Street Corporation (NYSE: STT), today announced the results
of a global survey of institutional investors on how they view the
fixed income market and how they are allocating their investments
amid the ongoing market volatility.
According to the survey report, The Future of Fixed Income, many
investors are adding private credit investments alongside their
public fixed income allocations. Additionally, they are showing a
growing appetite for new, systematic fixed income strategies to
help combat the impact of rising prices. The findings are based on
a global survey of 700 pension funds, endowments, foundations and
sovereign wealth funds, as well as wealth and asset managers.
“Our research confirms that with the dramatic rise in yields,
investors are concerned about how to balance risk and return within
their portfolios, leading them to look beyond traditional public
fixed income investments,” said Gaurav Mallik, chief portfolio
strategist for State Street Global Advisors. “Now is the time for
institutional investors to be strategic with their allocations, and
they are finding increased opportunity to pair private assets with
liquid publicly traded exposures. As investors navigate this
volatile time, we are well-positioned to help them access these new
approaches, meet their key objectives and manage their allocations
and flows.”
This year’s findings also reveal that fee pressure and increased
transparency are leading investors to embrace index-tracking
investments as a way to gain efficient access to attractive
sectors. For many investors, allocations are changing and a
balanced approach of active and index investments is gaining
traction.
“Institutions are embracing active and index fixed income ETFs
at an accelerating pace to optimize their portfolio’s asset
allocation and liquidity in this challenging market environment,”
said Bill Ahmuty, head of the SPDR fixed income group at State
Street Global Advisors. “As the fixed income market has evolved,
some of the structural inefficiencies that were historically
sources of outperformance have eroded, which has increased demand
for index-based investments. However, there are still opportunities
for active managers to add value, especially those with deep sector
knowledge and credit skills in specific segments of the credit and
loan markets.”
New Sources, New Approaches
As markets remain volatile and a recession looms, investors are
intensifying their consideration of alternative sources of return.
This change of approach by investors impacts how traditional
sectors are viewed, adds increased liquidity risk into the
equation, supports the rise of systematic strategies and may
disrupt some longstanding preferences for active approaches. The
report found that:
- As investors respond to the current market and consider their
portfolio duration, respondents are especially interested in
increasing allocations in bank loans (51%) and inflation-linked
bonds (42%) over the next 12 months.
- Around one-third of investors (31%) elected to reduce their
traditional fixed income allocations in favor of alternatives over
the last nine months, and a further 29% plan to do so over the next
12 months. Those seeking returns in alternatives outnumber those
going to cash.
- While only 14% of respondents globally increased their
allocations to fixed income in the last nine months, more
respondents (19%) say that they are planning to increase
allocations over the coming year.
- Investors are showing interest in new, data-driven approaches
to fixed income via systematic strategies. More than half (59%) of
investors exploring these strategies say they are planning to use
them to replace existing active strategies.
Indexing Cements Its Place
Indexing’s ability to capture the full performance potential of
even the most complex fixed income exposures, in a highly
cost-effective way, means that active management is no longer the
default choice for fixed income investors. The survey found
that:
- Over one-third (37%) of respondents say that more than 20% of
their fixed income portfolio is allocated to index strategies. For
larger investors (those with AUM over $10 billion), this figure
increases to 57%.
- 46% of respondents agree that they’re “under a lot of pressure
to make more efficient use of fees” in fixed income.
- More than two-thirds (76%) of respondents are not planning to
make meaningful changes to their balance of index and active
strategies in the next 12 months. Among those who do expect to make
a change, more will meaningfully increase their overall fixed
income allocation to index (14%) than to active (10%).
- For survey respondents who plan to increase allocations to
inflation-linked bonds, a majority plan to use indexed
approaches.
ESG Tops the Fixed Income Agenda for Certain
Investors
ESG emerged as a top priority for certain institutional
investors, overtaking managing the effects of inflation and rising
rates. The report found that:
- More than one-third (39%) of respondents say integrating ESG
considerations is the most important priority to address through
their fixed income allocations over the next 12 months.
- Nearly half of investors have integrated ESG factors within
high yield corporate credit (47%). Investment-grade credit (44%),
emerging market debt, and sovereigns (each 41%) are also making
good progress, but securitized debt (27%) continues to pose a
challenge.
About the Survey
The qualitative and quantitative survey was conducted in
mid-2022 and was administered by an independent third-party firm
not affiliated with State Street Global Advisors. State Street
Global Advisors is identified as the study sponsor. A total of 700
global institutional investors responsible for asset-allocation
decisions for top pension funds, wealth managers, asset managers,
endowments, foundations and sovereign wealth funds participated in
the study. For more information, see the full report.
About State Street Global Advisors
For four decades, State Street Global Advisors has served the
world’s governments, institutions and financial advisors. With a
rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of index and
active strategies to create cost-effective solutions. As stewards,
we help portfolio companies see that what is fair for people and
sustainable for the planet can deliver long-term performance. And,
as pioneers in index, ETF, and ESG investing, we are always
inventing new ways to invest. As a result, we have become the
world’s fourth-largest asset manager* with US $3.48 trillion† under
our care.
*Pensions & Investments Research Center, as of 12/31/20.
†This figure is presented as June 30, 2022 and includes
approximately $66.43 billion of assets with respect to SPDR
products for which State Street Global Advisors Funds Distributors,
, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and
State Street Global Advisors are affiliated.
Investing involves risk including the risk of loss of
principal.
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All information is from SSGA unless otherwise noted and has been
obtained from sources believed to be reliable, but its accuracy is
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for, decisions based on such information and it should not be
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The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor's particular investment objectives,
strategies, tax status or investment horizon. You should consult
your tax and financial advisor.
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2023
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Luke O‘Mahony (EMEA) +44 (0) 7759 067 914
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