Investors rotate into fixed income as diversification demand grows: Capital Group

Institutional investors are increasing allocations to fixed income and broadening exposure beyond the US as they reposition portfolios for a more volatile and fragmented macro environment, according to new research from Capital Group.

The firms Fixed Income Horizons Survey 2026 found asset owners are prioritising diversification, liquidity and portfolio agility as concerns around equity concentration risk and global market uncertainty continues to rise.

The survey conducted among 300 senior investment professionals across Asia-Pacific, Europe, the Middle East and North America, showed 72% of respondents plan to adjust credit portfolio composition over the next 12 months, while 67% are focused on increasing geographic diversification.

Capital Group fixed investment director Haran Karunakaran said investors were increasingly turning to fixed income as a defensive portfolio tool.

"Fixed income is increasingly being used to stabilise portfolios as uncertainty persists," said Karunakaran.

The study also highlighted growing demand for more flexible investment mandates, with 66% of investors seeking greater agility through measures such as expanding tactical asset allocation limits. Active management is also gaining favour, with 46% planning to increase the use of active strategies within fixed income, compared to just 5% reducing exposure.

Liquid fixed income allocations are also rising, with 31% of investors intending to increase holdings over the coming year. Diversifying equity risk and strengthening defensive positions were identified as key drivers.

The survey found a notable shift away from US centric credit allocations. More investors now plan to increase exposure to European and Asia-Pacific investment grade credit than US investment grade debt, reversing last year's trend.

Emerging market debt is also attracting renewed interest, with planned allocations nearly doubling year-on-year as investors pursue higher yields and diversification benefits, more than three quarters of respondents expect yields across emerging market debt sectors to remain stable or rise over the next 12 months.

Private credit remained the most popular segment for increased allocations, with 34% planning to lift exposure. Meanwhile, 58% of investors said private credit now accounts for at least 10% of their fixed income portfolios, up sharply form 39% a year earlier.

Capital Group Australia head of client group Jordan Brown said investors were increasingly relying on active management to navigate widening dispersion across regions and sectors.

"As dispersion increases across regions and credit sectors, many investors are using active management to navigate shifting correlations and uncover resilient sources of income", Brown said.