More than two-fifths of pension funds expect fixed income performance to deteriorate over the next year

According to Aeon Investments, more than two-fifths (43%) of pension funds and other institutional investors expect the performance of fixed income securities to deteriorate further over the next 12 months, with 13% expecting a significant drop.

The research comes after global bond markets suffered “significant losses” in recent months.

More than a quarter (28%) of pension funds believe that the performance of the fixed income market will improve.

Aeon’s research on pension funds and other institutional investors in Europe and the United States also found that 62% of respondents expected institutional investors to reduce their exposure to fixed income securities over the the year, and 11% expected them to increase it.

Asked about the institutions they work for, 48 percent expected them to reduce their exposure by more than 10 percent this year, with a further 38 percent expecting a reduction of up to 10 percent.

For the institutions they work for, 15% of respondents thought they would reduce exposure by up to 5%, 23% thought it would decrease by 5-10%, 32% thought it would decrease by 10% and 15 percent, 12 percent believed it would be between 15 and 20 percent, and 4 percent believed it would decline by more than 20 percent.

Aeon Investments Managing Director Oumar Diallo said: “The fixed income market has gone through a difficult period, and the current macro-economic environment points to continued struggles for much of the market.

“Many investors are re-allocating to other asset classes, particularly those that offer some degree of inflation hedging such as commodities, and others that offer attractive higher yield but in a relatively low risk like structured credit.”

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