MPG: Bonds and equities correlation expected to turn increasingly negative

MPG: Bonds and equities correlation expected to turn increasingly negative

6 maart 2024

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Almost half of institutional investors believe the recent positive correlation between bonds and equities together will reverse.

Institutional investors and wealth managers expect the correlation between bonds and equities to turn increasingly negative over the next 12 months, concludes Managing Partners Group (MPG) today from own research.

‘The study with institutional investors and wealth managers holding assets of € 107 billion under management found 43% believe the recent positive correlation between the two asset classes with both falling and rising together will reverse. Around one in three (31%) questioned’ ‘said they expect the correlation to become increasingly positive while 24% believe it will not change and 2% were undecided.

Fears of recession in major economies is however driving increased interest in adding longer duration core fixed income assets which offer the combination of portfolio diversification, an attractive yield and capital appreciation. Around 69% questioned expect allocations to longer duration core fixed income assets to increase over the next 12 months with just 29% expecting allocations to be unchanged and 2% undecided.

US investment grade corporate bonds and UK Government bonds are the fixed income asset classes currently most selected among the top five in this sector for the most attractive risk and return profiles, as the table below shows. Swiss Government bonds, EU Government bonds and UK investment grade corporate bonds are also highly rated.

The study found that professional investors believe that credit ratings and downgrades are more likely to align with historical trends rather than surpass them as the global economy slows down due to companies generally having more robust balance sheets. Around 90% questioned agree that credit ratings and downgrades will be in line with historical trends while just 9% disagree and 1% are unsure.’

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