Schroders Investment: Farewell to the Era of Pure Income, Active Strategies Become Key Under the New Debt Market System

The Middle East conflict has lasted for more than a month, and the development of the situation still presents various possibilities, making it difficult for investors to see the economic and financial market outlook. At the same time, global yields are currently at multi-year highs, prevalent in the fixed income market. In this environment, Schroders believes that the most appropriate response strategy is to actively manage bond duration and credit risk while positioning globally, seizing profit opportunities in a complex market, allowing bonds to once again become the "core income engine" of investment portfolios. Julien Houdain, Global Unconstrained Fixed Income Investment Director at Schroders, pointed out that before 2022, the world was in a zero-interest-rate era, and bond market investments relied almost entirely on "credit spreads," with duration being of minimal importance; however, now interest rate trends have become the core focus of bond management. While income remains attractive, how to manage interest rate sensitivity will determine investment success or failure. "The high debt issues in some developed countries will lead to fiscal fragility. The inflationary pressures brought about by oil supply shocks and other supply chain disruptions (such as fertilizers) have prompted the team to raise risk probability assessments. However, unless there is an extreme inflation shock, the current level of yields is significantly higher than in 2022, providing stronger downside protection for bonds, with the coupon rate itself serving as a key buffer." Julien noted that the current team maintains a defensive bond allocation to seize investment opportunities in a timely manner and to increase risk assets as market volatility allows. He remains optimistic about global finance and certain real estate credits, as both have relatively solid fundamentals and attractive valuations. If the market experiences a sell-off due to the artificial intelligence (AI) theme, these sectors should perform relatively well. In a turbulent environment, active management and flexibility are crucial for safeguarding investment portfolios. Considering global duration (interest rate risk), Canada is the team's preferred choice. The local economic environment—including a weakening labor market and slowing core inflation—seems inconsistent with the Canadian bond market's pricing in of two rate hikes by 2026. Through the Schroders Global Income Bond Fund, investors can capture global bond investment opportunities and broaden their sources of income. The Schroders Global Income Bond Fund¹ can explore opportunities across a wide range of global bond markets, striving for relatively attractive income and balancing risk through allocations across different bond categories. The fund's primary objective is to maintain sustainable and attractive dividend yields, aiming to provide a fixed dividend yield of 6.5% (applicable to USD and HKD A Income MF classes², with dividends payable from capital). The fund primarily invests in high-quality global corporate bonds, maintaining an average credit quality of BBB+ as of March 27, 2026. The Schroders Global Income Bond Fund operates without benchmark constraints, breaking through geographical and industry boundaries, making active management even more important in capturing investment opportunities in volatile markets. The investment team will also flexibly adjust duration to respond to different interest rate risks In addition to developed countries in Europe, the United States, and Canada, due to less hawkish monetary policies, investment teams can moderately allocate to emerging market bonds to enhance the yield of their bond portfolios. This approach also allows for a more diversified and flexible asset allocation from a global diversification perspective. Schroders advocates a "bottom-up" bond selection strategy to eliminate human biases, combining in-depth fundamental research with systematic quantitative tools. Through quantitative strategies, its global unconstrained fixed income investment team can identify mispriced investment opportunities in the vast corporate bond market. In recent years, the trend of global corporate interest coverage ratios has increased, and leverage usage has decreased, which helps strengthen corporate credit and financial quality. With rising interest rates, there is a strong incentive to reduce debt to maintain credit ratings, which will increase market diversification and provide a favorable environment for active investors to allocate "yield" bond portfolios. Please click here to learn more. Being proactive is an advantage. Whether it is building the resilience of investment portfolios, seeking return opportunities, generating income, or reducing the carbon footprint of portfolios, Schroders' expertise can provide a forward-looking perspective. Investing involves risks. Past performance may not be indicative of future results. For details (including risk factors), please refer to the relevant sales documents. This information is published by Schroders Investment Management (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission. (Data and images provided by the client) ¹ The Schroder Global Income Bond Fund refers to the Schroder Global Fund Series - Global Income Bond. ² The manager will distribute dividends for income units. The manager has independent and absolute discretion to change the dividend rate and/or frequency, but must provide one month's prior notice to the relevant unit holders. The dividend rate is not an indicator of fund returns. Dividends may be paid from capital when the fund distributes dividends. Investors should note that paying dividends from capital means that a portion of the amount is returned or withdrawn from your original investment amount or from capital gains earned on such amounts, which may immediately lead to a decrease in unit value. For details of dividend distributions for all unit classes, please refer to the dividend policy and frequency table