A study of hundreds of institutions around the world, including wealth and asset managers, examines how they play the fixed income asset class universe in an age of rising inflation.

A global survey of 700 pension funds, endowments, foundations and sovereign wealth funds, as well as wealth and asset managers, finds that many of them are adding private credit investments alongside their public fixed income allocations. 

Additionally, these investors are showing a growing appetite for new, systematic fixed income strategies to help combat the impact of rising prices, according to the report from State Street Global Advisors, part of State Street. The report is entitlled The Future State Of Fixed Income.

“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,” Gaurav Mallik, chief portfolio strategist for State Street Global Advisors, said. “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.”

Fee pressure and increased transparency are leading investors to embrace index-tracking investments as a way to gain efficient access to attractive sectors. 

“Institutions are embracing active and index fixed income ETFs at an accelerating pace to optimize their portfolios' asset allocation and liquidity in this challenging market environment,” Bill Ahmuty, head of the SPDR fixed income group at State Street Global Advisor^SM said. 

Respondents are especially interested in increasing allocations in bank loans (51 per cent) and inflation-linked bonds (42 per cent) over the next 12 months amid the inflationary environment.

Around one-third of investors (31 per cent) have elected to reduce their traditional fixed income allocations in favour of alternatives over the last nine months, and a further 29 per cent plan to do so over the next 12 months. Those seeking returns in alternatives outnumber those going into cash.

While only 14 per cent of respondents globally increased their allocations to fixed income in the last nine months, more respondents (19 per cent) say that they are planning to increase allocations over the coming year.