In 2024, AXA Investment Managers highlights a promising opportunity for insurance investors within the fixed income sector.
Arnaud Lebreton, Head of AXA US & UK CRM, Third Party Insurance Solutions, emphasises the importance of navigating the current economic landscape with sophistication.
Lebreton suggests a phased approach, initially focusing on rebuilding book yields and managing duration and reinvestment risks.
This entails prioritising long-duration high-grade assets to capitalise on risk-free rates. ”Utilising bond investments alongside interest rate swaps provides flexibility to manage duration gaps and leverage multi-year-high yields in investment-grade credit. Forward swaps and bonds are recommended to hedge reinvestment risk effectively.
While advocating for selectivity and diversification in credit investments, Lebreton advises insurers to remain vigilant and diversify beyond domestic markets to mitigate volatility.
Phase two of the strategy is contingent upon reduced uncertainty, where insurers can leverage credit derivatives or active fixed income ETFs to increase credit beta exposure and capture volatility spikes.
In riskier market segments like high yield and emerging market debt, Lebreton suggests employing actively managed short duration strategies for higher returns on capital, lower volatility, and improved liquidity.
Despite potential opportunities across the risk spectrum, careful preparation is advised to mitigate downside risks.
