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Investors adapt to ‘higher-for-longer’ environment, opt to de-risk

By Jessica Penny
3 minute read

The majority of investors globally believe that the “ultra-low” interest rate regime is a thing of the past, according to new data.

The majority of investors (65 per cent) believe that a new market regime is reshaping how they manage risk and return, according to new findings from Nuveen.

Namely, eight in 10 claim that the era of “ultra-low” interest rates is now firmly in the past, paving the way for a high-for-longer rate environment that investors will have to adapt to.

“Over the last 10 years, everything was so well behaved. Inflation was low, growth was neither too hot nor too weak, there were no concerns around China and there was no such thing as net zero. It was all about efficiency of supply chain, not resiliency,” a UK pension fund chief investment officer said in Nuveen’s global investor survey.


“Now all those things have been turned on their head. Everything that was looking good in terms of consideration now has a question mark. So it makes our life quite difficult, in terms of how we bring it all together.”

However, the investment manager said that the normalisation of interest rates has also created new opportunities for many investors to de-risk, with a focus on high-quality public and private fixed income.

Namely, nearly half of the investors surveyed (48 per cent) indicated plans to boost their allocations in investment-grade fixed income securities, driven by a growing consensus among investors anticipating an economic slowdown.

Meanwhile, 38 per cent are leaning towards increased allocations to private fixed income, where investment grade credit is the top pick.

One-fifth of respondents also indicated that, over the next two years, they plan to increase allocations to public securitised debt and below investment grade fixed income.

On the other side of the coin, significantly more investors are decreasing equity exposure (40 per cent globally) than increasing (28 per cent).

“Across all fixed income segments, corporate debt is attracting interest from investors. Corporates were the top choice for investors allocating to investment-grade and below investment-grade fixed income markets as well as private fixed income markets,” commented Mike Perry, head of Nuveen’s global client group.

“Investors are seeing greater value than before in these fixed-rate debt instruments. And for liability-driven investors, high-yielding fixed coupon bonds have become an attractive way to enhance their liability matching.”

Meanwhile, Nuveen said that flexibility has become a central characteristic to portfolio resilience, which has become a priority for almost half of investors (46 per cent).

Survey respondents are also addressing portfolio resiliency through incorporating measures of risk beyond volatility (44 per cent), adjusting global and regional allocations (44 per cent) and risk mitigation overlays (43 per cent).