Fixed income very challenging, according to European investors

Three-quarters of European institutional investors describe the bond markets as challenging, as they await a rise in interest rates. The finding is the result of research carried out among European investors on behalf of alternative asset manager Aquila Capital.

According to the survey, 76% of investors say it is difficult to forecast the timing and direction of future interest rate movements. In addition, the prospect of rising interest rates is causing bond investors concern. Another finding is that half of investors would consider using a risk parity strategy. Aquila Capital managing director, Stuart MacDonald, commented: “It is understandable that risk parity, which offers investors a diversified and liquid alternative to their current fixed income assets, is likely to feature in a growing number of portfolios.”

Risk parity strategies are diversified across a range of assets and give equal risk weightings to different types of asset in a portfolio, such as corporate bonds, government bonds, carry positions in emerging markets and inflation-linked bonds. This means that risk parity strategies should be less affected by interest rate movements than fixed income portfolios which expose investors directly to duration or interest rate risk.