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Schroders creates framework to help overcome fixed income investor paralysis


Schroders Global Strategic Solutions team has devised a framework to help institutional investors around the world, many of whom are experiencing investor paralysis, address the vulnerabilities in their bond portfolios. says Scott Lothian – Senior Strategist, Global Strategic Solutions…

The past three decades have been exceptionally kind to traditional bond investors.  Steadily falling yields, globalisation and a generally-conducive regulatory environment have meant that bond markets have delivered on multiple fronts.  Whether investing for income, a real return, to hedge liabilities or to diversify more risky assets, fixed income portfolios have largely obliged.

The environment has undeniably changed – to persist with old strategies and expect the same outcome is irrational.  Investors are generally aware of the uncertain outlook for bonds and consequently for their existing portfolios.  The debate on interest rate hikes is much more about ‘when’ rather than ‘if’, with the end of quantitative easing (QE) often viewed as a key catalyst. Many institutional investors are experiencing a degree of ‘analysis paralysis’ because the decisions that need to be made are justifiably daunting and the road ahead has many forks.

Overcoming this paralysis will take time, resource and conviction. Unfortunately, there is no single ‘magic bullet’ replacement for the multi-faceted solutions bonds have delivered in years gone by.  Therefore, investors need to build portfolios to target their own specific required outcomes and accept that these probably will not come with the added extras many bondholders have become used to over the past 30 years.  We believe that acceptable solutions are achievable for investors of all governance levels, and encourage the use of our framework to ignite the movement.

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