09/11/2011
By Adam Cadle
Poor returns on fixed income investments is the primary worry amongst European institutional investors according to a survey by J.P. Morgan Asset Management.
The survey, conducted amongst 166 institutional investors from 15 countries across Europe, showed 22% of investors were concerned about the current low-rate environment having a significant impact on returns. Nineteen per cent were more worried about portfolio risk and 13% were concerned about inflation and rising rates.
Despite investor worries growing due to the current economic volatility, the survey revealed that 73% admitted that they would maintain or increase their fixed income allocations. In addition, European institutions allocate 56% of their overall portfolio to fixed income allocation with public pension funds holding 42% on average.
J.P. Morgan Asset Management international CIO of fixed income Nick Gartside said: “2011 has seen the almost unthinkable prospect of sovereign default arising in European markets including Greece, Ireland, Italy and Portugal. Meanwhile, concerns over the US economy and its level of borrowing have seen Standard & Poor’s downgrade US sovereign debt from triple-A for the first time in the country’s history.
“Against this backdrop, it is clear that fixed income investors are being taken into unchartered territory.”
Even though investors have made very few changes to their fixed income allocation strategies, Gartside highlighted that changes will be made in future.
“The stability of some European sovereigns and leading credit names will ensure that fixed income remains central to prudent institutional portfolio management. But as sources of high-quality yield continue to decline we anticipate a growing role for a greater variety of fixed income asset classes and more diversification across fixed income portfolios.”
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