The majority (84 per cent) of institutional fixed income investors expect to increase their level of risk in the next 12 months as they boost overseas investments in search of extra return, with one in 10 making dramatic increases, research from Aeon Investments has found.

As reported by our sister title, Insurance Asset Management, risk levels are also set to increase further over the next three years, as the research found that more than a third (38 per cent) of investors expect to make dramatic increases and 44 per cent said they will make slight increases.

In addition to this, 17 per cent of respondents said they expect to maintain current risk levels and 21 per cent said they will decrease them dramatically.

The changing risk levels reflect respondents’ views on their funds’ allocation to overseas fixed income markets, Aeon Investments stated.

When asked to assess the credit/fixed income allocation of the funds they manage in terms of their local country market, just over a third (36 per cent) of respondents said they have the weighting about right.

Meanwhile, 8 per cent of investors said they are very overweight; half said they are slightly overweight. Five per cent believe they are very underweight and 1 per cent said they are slightly underweight.

Looking to the next three years, nearly nine out of 10 (88 per cent) respondents said their portfolio will have a more global allocation to fixed income, with 35 per cent of those making dramatic increases to overseas markets, while 12 per cent expect to keep their allocations the same.

One-fifth of respondents said they believed their credit and fixed income investments are ‘very well aligned’ with their funds’ liquidity budgets, while half said they are ‘quite well aligned’.

However, just under a quarter (24 per cent) of investors said their credit investments are ‘much more illiquid’ and 6 per cent said they are ‘slightly more illiquid’ than their funds’ budgets.

Commenting on the findings, Aeon Investments head of portfolio management, Khalid Khan, said: “Increasing global fixed income allocations maximises diversification across all markets and issuers, and can have a positive influence on the portfolio’s risk return profile. The same is true of incorporating a broad range of asset classes and sectors.

“Investors should seek a manager that offers experience and demonstrable track record across the fixed income spectrum.”

Aeon Investments commissioned the market research company Pureprofile to interview 100 senior investment managers at pension funds, insurance asset managers, family officers and wealth managers with a total of $544bn assets under management. Survey respondents are based in UK, US, France, Germany, Hong Kong, Italy, Sweden, Singapore, Switzerland, UAE, and Saudi Arabia.

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