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Winds of change

A lasting legacy of 2022's unlamented market may be that allocators come to view bonds in a very different way to how they did in the past, with the extreme volatility of last year perhaps rebasing the role fixed income assets can play in portfolios.

And that heightened volatility was mirrored by sharp gyrations in how the multi-asset allocators we track viewed the asset class throughout the year. 

At the start of 2022, our database shows only 10 per cent of those we cover had a positive view of government bonds, with 70 per cent negative. 

By the start of 2023, these views had largely inverted, with two thirds holding positive views on the asset class, and 22 per cent negative.

That change of course mirrors a wider market shift to recession risk being viewed as the greater risk to portfolio returns than inflation risk. 

And the move was quite rapid, even at the start of the third quarter of 2022, only 12.5 per cent of the multi-asset managers we covered were positive on sovereigns, though the same proportion were negative, with three quarters having moved to a neutral position. 

In terms of corporate bonds, the start of 2022 saw investors split on high yield, with 40 per cent positive 10 per cent negative and the rest neutral. No one was positive on investment grade, while 62.5 per cent were negative. 

This has also changed. None of the fund houses in our research are now positive on high yield while 75 per cent are feeling good about investment grade.

The latest Morningstar data shows Sterling Corporate bond funds attracted a net inflow of £304mn in November, though outflows for the whole year were £1.3bn. 

Abrdn's Global Corporate Bond Tracker fund has been attracting significant capital this year, according to Morningstar, with net inflows of £1.1bn. 

This fund is owned by one of the allocators on our database. 

We also had a peak at our database which covers the Cautious portfolios of around 48 DFMS (if they have one) and discovered the average allocation to fixed income in those portfolios is 48 per cent at the start of 2023, with Invesco having the keenest exposure, with 75.5 per cent, Progeny is second highest with 67 per cent, while Close Brother Asset Management, at 28 per cent, is the lowest among the allocators we cover. 

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