Fixed Income was supposed to be about :
- Steady income and capital appreciation to create higher absolute returns
- Reduce volatility to create higher risk adjusted returns
- Add greater stability to traditionally constructed portfolios
- Provide long term resilience through reliance on multiple drivers of return
None of this is likely to happen in this macro environment.
Investing passively in traditional fixed income comes with low expected returns. As interest rates can only go up there is almost no scope for capital appreciation without taking credit risk. We foresee low risk adjusted returns. There are few opportunities to unlock an illiquidity premium in traditional investing when one excludes niches in non-traditional credit investing.