In bond markets, active managers generally outperform passive funds, in contrast to equity markets where active managers generally struggle. For active fixed income, bond yields are just the starting point for a returns.
Institutional investors invest with the long term in mind, concentrating on maximising the certainty of achieving a specific set of reliable outcomes. The relative price stability and the predictable income stream that bonds offer presents an attractive risk adjusted return. Institutional investors have long appreciated the benefits of fixed income allocations for this reason, often allocating substantial proportions of their portfolios to bond markets through both fixed income and Liability Driven Investment approaches.
Despite the new market terrain in 2025, the wise heed past lessons. The bar chart illustrates the most significant global stock market setbacks during the last 25 years observing the time it took to recover in each case. Notably, global bonds made a positive contribution to investor portfolios in each period.
Bond markets have historically had far lower volatility than equity markets, without the large drawdowns that equity markets periodically experience. This is because returns in fixed income are largely generated by income, in contrast to equity markets, where returns are reliant on capital appreciation.
US equities now account for over 70% of the MSCI World Index, reflecting an increasingly lopsided global equity market dominated by a handful of large US companies. The Magnificent Seven, the leading US tech companies, have a market capitalization of close to 18% of global GDP, leaving little room for error.
Bond yields now look compelling versus long-term equity
Even average managers can beat the bond market
Institutions have been allocating to bonds
Stock market crashes can bring long-lasting pain
Bonds offer resilience and sustainability
Equity concentration leaves little room for error
Bond yields are compelling relative to equities
Yields in many areas of the fixed income market are now close to – or even above – the long-term returns of the global equity market. This presents the potential for equity-like returns through fixed income, which offers contractually defined income, and which has historically experienced lower volatility.
The market capitalisation of the Magnificent Seven leaves little room for error
12-month rolling returns expose the relative drawdown risk across the two asset classes
Stock markets have taken a long time to recover after major setbacks
Regional asset allocations of institutional investors
Median active manager alpha
Source: Coalition Greenwich Voice of Client – 2024 Global Institutional Investors study
Source: eVestment and Bloomberg as at 31 December 2025. Alpha is based on each strategy's benchmark.
Source: Bloomberg and Insight. Returns provided in total return terms. For illustrative purposes only.
Source: Insight and Bloomberg. Data as at 31 December 2025.
Source: Insight and Bloomberg. Data as at 31 December 2025.
Source: Insight and Bloomberg. Data as at 31 December 2025. MSCI World data between 31 December 1999 and 31 December 2025. Index yield to maturity for relevant Bloomberg Indicies.