A Capital Group study has found asset owners are increasing their fixed income allocations in response to heightened macro uncertainty and equity market risk.
According to the findings, investors are prioritising diversification, geographic rebalancing and flexibility, while showing renewed interest in investment grade credit and emerging market debt.
The US$3.3 trillion active investment manager’s Fixed Income Horizons Survey 2026 surveyed 300 senior investment professionals across Asia-Pacific, Europe, the Middle East and North America. It examined how institutional asset owners plan to position fixed income portfolios over the next 12 to 24 months.
Capital Group fixed income investment director Haran Karunakaran said the findings suggest fixed income is increasingly being used to stabilise portfolios amid ongoing uncertainty.
“Our Fixed Income Horizons Survey shows a growing focus on geographic diversification and portfolio flexibility, particularly among EMEA [Middle East] and Asia-Pacific investors, as they look to reduce concentration risk.
“Asset owners are also evolving their investment approach to give managers greater scope to respond to market change,” Karunakaran said.
Key findings show agility and diversification rising as uncertainty persists, with 72 per cent of asset owners prioritising credit portfolio composition shifts and 67 per cent focusing on geographic diversification over the next 12 months. Two thirds of respondents (66 per cent) also said they are prioritising changes to their investment approach to increase agility, most commonly by increasing tactical asset allocation limits.
Meanwhile, 46 per cent said they are increasing the use of active management within fixed income, while just 5 per cent are reducing it.
The firm’s head of client group for Australia, Jorden Brown, attributed this to rising dispersion.
“As dispersion increases across regions and credit sectors, many investors are using active management to navigate shifting correlations and uncover resilient sources of income,” Brown said.
Active management has been shown to add value in fixed income among Australian managers, with most local bond managers outperforming passive strategies over the past three years – significantly more consistently than in equities.
The study also found liquid fixed income allocations are trending up over the next 12 months, with 31 per cent planning to increase. Key drivers cited by respondents were diversifying equity risk and defensive positioning.
Sector and geographic allocations
In a repeat of the firm’s 2025 findings, private credit remained the most popular sector for increased allocations, with 34 per cent planning to increase exposure over the next year. Nearly 60 per cent of asset owners now say private credit makes up 10 per cent or more of their fixed income allocations, up from 29 per cent in 2025.
Geographically, Capital Group found more asset owners plan to increase allocations to Europe (32 per cent) and APAC (36 per cent) investment grade credit over the next 12 months. This represents a reversal of last year’s trend. Overall demand for investment grade corporate credit was cited at 31 per cent.
While home bias persists, the report found cross-regional interest is also increasing compared with last year’s survey, with Middle East investors lifting APAC allocations by 9 per cent, APAC adding 16 per cent to Europe, and North American investors increasing European allocations by 4 per cent.
Emerging market debt (EMD) also hit new highs, with 30 per cent of investors saying they planned to increase allocations – nearly double last year’s 16 per cent. Capital Group attributed the increase to “expectations of diversification benefits and yield premium”.
With over three-quarters of respondents expecting real yields in EMD to stay stable or rise over the next year, Capital Group said this points to continued relative attractiveness versus developed market credit.
