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UK schemes to add to fixed income allocations
16 July 2013
Survey puts 'great rotation' into doubt
A survey of UK pension fund professionals shows two thirds intend to increase allocations to fixed income, according to Aquila Capital.
The alternative investment manager surveyed 118 UK-based pension fund professionals and found 65% intended to keep or increase their allocations to fixed income over the next three years.
Despite the uncertainty many investors feel about the outlook for the asset class, Aquila found a third (34%) of those questioned planned a 'moderate' increase in fixed income allocations, while a further 31% said they would retain holdings at their current levels. About a quarter (26%) of investors said they were likely to reduce holdings.
Stuart MacDonald, managing director at Aquila Capital, said: “As our research shows, UK pension funds do feel challenged by the fixed income market, especially by the prospect of interest rate rises. Yet most of them plan to retain or even increase their exposure to it.”
The survey found that over half (53%) of respondents rejected the notion of a a ‘great rotation’ away from bonds to equities. Aquila said less than one in six (15%) though there was a rotation underway, while third (32%) were uncertain.
Yet despite the stable allocations, most investors (66%) said fixed income was a ‘challenging’ or ‘very challenging’ asset class, citing rising interest rates, low yields, the threat of inflation and the difficulties in assessing credit quality as difficulties.