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In a new survey of pension funds and other institutional investors in Europe and the US, who collectively have around $436.5 billion in assets under management, nearly one in four (23%) said they have reduced their allocation to traditional fixed income assets over the past 18 months by up to 10%, and half (51%) said they have cut it by between 10% and 15%. A further 14% have reduced their exposure by more, and just 12% say they have increased it. Other key findings include:

In terms of the main reasons for reducing their exposure to bonds, 61% said it was because of the strong performance of equities which meant they increased their allocation to this asset class. 53% said it was because of rising inflation and the threat of this continuing, and 46% said it was due to falling valuations in fixed income assets. Some 42% blamed poor yields on many traditional fixed income assets.

Of the funds reallocated from traditional fixed income assets to others over the past 18 months, 49% of professional investors interviewed said that at least 25% of it had been invested in structured credit focused investments that offer attractive yields whilst preserving capital.

Some 57% said that they had allocated this amount into private equity, and the corresponding figures for commodities, real estate and equities are 49%, 40% and 35% respectively.

Oumar Diallo, CEO, Aeon Investments said: "The outlook for fixed income remains mixed with continued inflationary concerns and tightening monetary conditions following a sustained period of emergency stimulus introduced during the pandemic. However, with alternative credit offering increasingly attractive risk-adjusted returns, we expect to see further reallocation into this space from traditional fixed-income investments over the course of the year."