The 2024 Global Survey of Financial Advisors from Natixis Investment Managers revealed investors' ongoing hesitance to move out of cash and into bonds. The survey, conducted between June and August 2024, included 2,700 financial professional participants across 19 countries.
“Of the 2,700 advisors surveyed, 89% said they’ve been challenged to increase fixed income allocations in client portfolios,” Natixis wrote.
Image source: Natixis Investment Managers
The ongoing uncertainty around inflation and rate cuts and their impact on fixed income remains a notable hurdle for many investors. In the wake of the presidential election, the path of inflation becomes one of increased complexity looking ahead.
Should potential inflationary pressures pick up in 2025, a higher-for-longer rate environment could create challenges for the bond narrative. And 48% of financial professionals reported interest rate policy uncertainty as a motivating factor for clients not increasing bond exposures.
Time to Reconsider Bonds
Cash and cash alternatives such as money markets proved a safe — and lucrative — investment during rising and peak interest rates. Now, with rate cuts underway, investors appear reluctant to move from their safe havens. Overall, 43% of advisors reported the lack of a clear, financially beneficial alternative as the reason clients remained camped in cash.
“Another 39% say it’s also been hard to show clients the benefits of upping fixed income allocations in general,” explained Natixis. “Making it more challenging, according to 39% of advisors, is their clients’ knowledge, or lack thereof, about fixed income.”
The specter of 2022 stock and bond correlations and significant drawdowns continues to haunt investors. The decadelong underperformance of bonds in the 2010s likely doesn't help confidence either. Bonds generated muted returns while the Fed put remained in markets, eclipsed by the extended bull run of equities.
In an environment of elevated but declining interest rates and ongoing quantitative tightening by the Fed, fixed income appears an attractive alternative to cash. Educating clients on the benefits and role of fixed income in their portfolios may lead to greater confidence. This, in turn, may help investors overcome their reluctance to move out of cash and into bonds.
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