Fixed income favored as US institutions bet on higher rates for the next 12 months

Fixed income favored as US institutions bet on higher rates for the next 12 months
CoreData report also highlights intolerance with underperforming active equity strategies.
NOV 14, 2023

More than three quarters of U.S. institutional investors are expecting interest rates and inflation to remain elevated for at least the next 12 months, putting fixed income investments in pole position to generate the best returns in 2024.

A new report from CoreData also reveals that these organizations are tiring of active equity strategies that are underperforming with four in ten offboarding those that do not hit the mark. A similar share is raising their hurdle rates for risk assets.

The current rate and inflation environment is influencing low-risk strategies with attractive risk-free yields available. Respondents have raised strategic allocations to government bonds/cash-like investments (43%), slowing new investments into risk assets (43%), and trimming their exposure (30%).

Not that active strategies are off the table. In fact, 54% of poll participants expect their actively managed equity strategies to deliver strong outperformance in the next year, while expectation for equities overall is muted with 35% bullish on U.S. equities in the next three months compared to 45% bearish. Just 10% are bullish on Chinese equities over the same period vs. 78% bearish.

TECH STOCKS OVERVALUED

Investors rank the economic outlook, rate expectations, and valuations as their top three drivers of their outlook for equities over the next three months.

Seven in ten respondents say tech stocks are overvalued and a catastrophic market event is also a rising concern with 47% saying a tail risk event is more likely than average. Eight in ten say quality will drive performance in the next three months.

“These results show that 5% risk-free yields have completely changed the calculus for institutional
investors,” said Michael Morley, US Research Director at CoreData. “The trend of de-risking portfolios
and consolidating active investments with high conviction managers is likely to accelerate, putting a
painful squeeze on the industry which is already faced with a low beta environment.”

Latest News

Investor anxiety hits six-year high amid market turmoil, Allianz finds
Investor anxiety hits six-year high amid market turmoil, Allianz finds

New survey reveals heightened investor concern over market volatility, retirement readiness, and the impact of tariffs on living costs.

Stifel star broker, Chuck Roberts, leaves firm under cloud of investor complaints
Stifel star broker, Chuck Roberts, leaves firm under cloud of investor complaints

Stifel – so far - is on the hook for more than $166 million in damages, legal fees and settlements in investor complaints involving Roberts, a 35-year industry veteran.

RIA moves: The Mather Group, Brand Asset Management announce deals
RIA moves: The Mather Group, Brand Asset Management announce deals

Consolidation continues in US wealth management industry.

US broker-dealer fintech aims for global footprint as it acquires international firm
US broker-dealer fintech aims for global footprint as it acquires international firm

Tech company democratizes access to US trading infrastructure.

Advisor moves: RBC swipes $1.7B UBS team, Baird duo departs for LPL's Linsco channel
Advisor moves: RBC swipes $1.7B UBS team, Baird duo departs for LPL's Linsco channel

RBC Wealth Management's latest move in New York adds an elite eight-member team to its recently opened Westchester office.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.