New York-headquartered The Bank of New York Mellon Corporation, has released new research this week from BNY Investments entitled “Shaping tomorrow’s portfolios: The strategic role of fixed income,” which reflects how advisors think about fixed income.

There was a time when bonds were viewed as a dependable but unexciting constituent of any investment portfolio. In recent years, however, bonds have offered investors a different experience. New research from BNY Investments shows how UK financial advisors are deploying fixed income investments both to protect client portfolios against a complex market backdrop and drive returns.

Market swings – notably tariff-driven volatility and the bond sell-off in 2022 – have created an uncertain backdrop for advisors allocating to fixed income, BNY said. However, findings reveal increased confidence in the asset class, showing that advisors have increased their allocations to fixed income over the past 12 months. The outlook for interest rates was cited as the primary factor for these changes (55 per cent), followed by inflation expectations (43 per cent) and the relative value of bonds against other asset classes (42 per cent).

In response to significant market swings, almost a quarter of advisors increased their diversification across different bond types as a means of hedging the risk. Advisors also stated that they anticipate increasing allocations in the year ahead.

The quantitative research, in collaboration with NMG Consulting, surveyed 125 UK financial advisors in April 2025. Eligible respondents were either involved in fund selection, had at least 10 per cent average fixed income allocation across client portfolios, and generated at least 30 per cent of their combined income from investments and pensions.

“The market gyrations of 2022 reset the asset class and with higher yields now offering a myriad of opportunities for investors, the stereotype of bonds being boring feels very misplaced,” Michael Beveridge, head of UK distribution at BNY Investments, said.  

Fighting volatility with bond funds
Increased use of bond funds proved to be the most popular approach for managing market instability, with nearly a quarter of advisors increasing bond fund allocations in a response to notable market swings, the research shows. Seventy-seven per cent highlighted that the main attraction was the flexibility these funds provide in dealing with shifting interest rate dynamics. Over a third of advisors value bonds' ability to provide one-stop diversification, preferential to making separate allocations to underlying sub-asset classes.

However, advisors recognise that these strategies could carry risks, BNY said. Nearly half of advisors selecting bond funds stated that their main concern was risk concentration should the manager’s view be incorrect (43 per cent). This indicates that advisors require solutions that can cope with changing markets without taking on excessive risk – instead generating controlled incremental returns.

When asked what institutional approaches could be valuable for retail clients, over a third of advisors stated outcome-oriented portfolio construction techniques and having access to fixed income markets typically restricted to institutions (36 per cent). This indicates that advisors are increasingly recognising the value of institutional methods, such as using liability matching techniques as a decumulation tool for clients approaching/and in retirement.

“Advisors remain understandably cautious about fixed income, yet it’s evident they recognise the opportunities in bonds as current yields approach the returns we might normally expect from equities,” Beveridge said. “At BNY Investments, we focus on bringing institutional discipline to retail fixed income management. Through Insight Investment, our fixed income investment platform, advisors can get what they clearly need – an investment process that focuses on the delivery of incremental returns through thoughtful risk management, a process increasingly critical in today’s market environment.”

A number of investment managers have been positive about fixed income this year. Vincent Mortier, group chief investment officer at French asset manager Amundi, for instance, said that the name of the game in 2025 will be diversifying away from the US and into European and emerging market bonds.

David Zahn at Franklin Templeton is also quite positive about the outlook for fixed income in Europe for the rest of this year. In particular, he sees opportunities in short-duration assets, and believes that fixed income will deliver well. James Turner and Simon Blundell, co-heads of European fundamental fixed income at BlackRock, also think that now is the time to shift allocations from cash to bonds.