After more than a decade of financial repression, institutional investors are recalibrating for a world where the real cost of capital is positive again.
In this note we examine cross-asset positioning, duration exposure, and the implications for alternative allocations across the next twelve to eighteen months.
We conclude that dispersion (not direction) is the dominant opportunity, with security selection and manager alpha reasserting themselves as primary return drivers.
“Positive real rates reward selectivity. Duration alone is no longer a sufficient source of defence.”
- 01Real yields have restored the strategic role of high-quality fixed income.
- 02Greater dispersion raises the value of security selection across public markets.
- 03Liquidity and refinancing schedules deserve as much attention as headline yield.
The practical consequence is a more deliberate approach to duration. Investors can earn income from high-quality assets again, but the path of inflation still matters. Portfolios therefore need enough flexibility to respond when growth, policy and market pricing move at different speeds.
Within credit, balance-sheet resilience remains central. We favour borrowers with visible cash flow, manageable refinancing needs and the ability to protect margins without relying on aggressive assumptions.
This is not a call to abandon risk assets. It is a case for requiring better compensation for each unit of risk and for keeping sufficient liquidity to act when volatility creates a genuine valuation gap.