Unlocking Value in Fixed Income: A Strategic Approach for 2025

Posted by Bedrock on 3rd March 2025

The fixed income landscape has changed dramatically in recent years.  Following a prolonged period of ultra-low interest rates, rates rose dramatically in 2022 and have largely stayed higher for longer. While this shift has presented challenges, it has also created some compelling opportunities for those seeking steady income and capital preservation.

In this interview, Alex Perowne, Head of Fixed Income at Bedrock Group, shares his insights on where the most promising opportunities lie, how market dynamics have evolved, and why fixed income remains a strong option for investors in 2025.

Capitalising on shifting bond market dynamics

Q: How has the fixed income market evolved in recent years?

A: Two key changes define today’s market. First, the return to a more normalised interest rate environment has re-established fixed income as a fundamental part of a diversified portfolio. After years of historically low yields, bonds are once again offering attractive income with some potential capital gain opportunity.

Second, the fixed income universe has expanded significantly, with a greater number of issuers and more diverse investment opportunities. While this broadens the scope for investors, it also requires deeper research and careful security selection to identify genuine value in the market.

“After years of historically low yields, bonds are once again offering attractive income with some potential capital gain opportunity.”

A prime time for fixed income

Q: What makes fixed income particularly attractive right now?

A: We’ve now moved into a more stable environment where bonds once again offer competitive risk-adjusted returns. Today, fixed income provides a solid income stream while also offering the potential for capital gains as monetary policy normalises. For investors seeking stability and diversification, bonds now represent one of the most compelling opportunities in global markets.

“The rapid rate hikes of 2022 unsettled fixed income, but we’ve now moved into a more stable environment where bonds once again offer competitive risk-adjusted returns.”

A positive outlook for 2025 

Q: What’s your outlook for fixed income for the rest of 2025?

A: We’re positive on the asset class. The combination of attractive yields and the possibility of rate cuts creates an environment that’s favourable for both income generation and capital appreciation. In well-managed fixed income portfolios, we see the potential for high single-digit returns, with market volatility creating further opportunities to acquire high-quality bonds at discounted prices.

With interest rates stabilising and the possibility of rate cuts ahead, fixed income offers a rare opportunity to lock in attractive yields while benefiting from capital appreciation. After years of underperformance, bonds have reasserted themselves as a core component of a diversified investment portfolio.

“After years of underperformance, bonds have reasserted themselves as a core component of a diversified investment portfolio.”

For investors seeking stability, income, and long-term value, fixed income remains one of the most compelling opportunities in 2025.

Targeting the standout sectors

Q: Which areas within fixed income are presenting the most attractive opportunities?

A: Our team has deep expertise in fixed income and a long-standing track record in the industry. Based on our current analysis, there are several sectors that currently stand out and which we’re choosing to focus on.

Financials, particularly banks and insurers, remain undervalued despite their strong balance sheets and improved profitability. Many institutions continue to benefit from the higher interest rate environment, yet their bonds still trade at a discount due to muscle memory from the 2008 financial crisis. However banks and insurers’ balance sheets are in a much better place now, having been cleaned up and significantly delevered.

The energy sector has also undergone a significant shift. Over the past decade, many companies have deleveraged, improved financial discipline, and positioned themselves for long-term resilience. This transition has created compelling investment opportunities in both traditional and renewable energy segments.

Additionally, defensive, cash-generative sectors like food production, gold mining, and utilities continue to provide stability in volatile markets. These industries offer predictable cash flows and strong downside protection, making them particularly appealing in the current economic climate.

Taking advantage of stability and predictable income

Q: What makes fixed income attractive to family offices and private investors?

A: Family offices and private investors often favour fixed income because it offers stability and predictable income, mitigating the volatility that can be experienced in other asset classes. The regular coupon payments, and the fact that this income is accrued on a daily basis, is often seen as being attractive to families. Bonds provide a more transparent and stable return path than many other investments.

“Family offices and private investors often favour fixed income because it offers stability and predictable income, mitigating the volatility that can be experienced in other asset classes.”

With current bond yields now around the long-term return associated with equities, the risk-adjusted return profile of fixed income is highly compelling. Bonds also provide daily liquidity, allowing the family office to maintain flexibility in their portfolio to meet unexpected expenses or take advantage of new investment opportunities.

Additionally, in many jurisdictions, fixed income can be more tax-efficient than holding cash, as often we see that capital gains on bonds are taxed at a lower rate than income (each tax jurisdiction is different however and independent tax advice should be sought). This makes fixed income an attractive option for families seeking yield with a lower risk profile and ensures they can meet their financial goals while maintaining stability and predictability in their investments.

Seeking value from mispriced opportunities

Q: Can you describe your investment philosophy and what sets your approach apart from others?

A: As Head of Fixed Income, I’m responsible for managing bespoke bond portfolios for clients who want predictable income, capital stability and some potential capital gain. Unlike many of our peers who use funds or ETFs, we build portfolios individually, giving clients complete transparency over their holdings. Our investment philosophy is centred on relative value – seeking out high-quality issuers that are trading below fair value and then building portfolios which are diversified across duration and ratings.

Our investment process follows a structured approach:

• Scanning the market for attractively priced issuers
• Conducting in-depth credit analysis to assess financial strength
• Performing stress tests to evaluate resilience in different market conditions
• Making targeted investment decisions based on value rather than market momentum
• Actively managing portfolios to reinvest in opportunities as they arise

A key element of our approach is our bespoke managed account service. Clients receive an actively managed, research-driven fixed income portfolio tailored to their specific needs. Whether it’s adjusting for currency risk, yield target/credit risk, or attempting to optimise for tax efficiency, each portfolio is constructed with a high degree of personalisation.

“Whether it’s adjusting for currency risk, yield target/credit risk, or attempting to optimise for tax efficiency, each portfolio is constructed with a high degree of personalisation.”

Transparency is also a differentiator. Clients have full visibility over their holdings and can see their income streams in real time, ensuring they remain fully informed about their portfolio’s performance.

This combination of a structured, value-driven approach and personalised service ensures that our clients receive a unique and effective investment experience.

If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.ch.

Important Legal Information

The content of this document has been prepared by Bedrock S.A., Bedrock Monaco SAM, and Bedrock Asset Management (UK) Ltd. (jointly, hereafter, “Bedrock”).

The information and opinions contained in this document are for background information and discussion purposes only and do not purport to be full or complete. No information in this document should be construed as providing financial, investment or other professional advice.

The information contained herein is intended for the sole use of the recipient and may not be copied or otherwise distributed or published without the express consent of Bedrock. Although the information contained herein has been established by Bedrock based on or by reference to sources, documents and systems it believes to be reliable and accurate, Bedrock does not guarantee its accuracy or completeness and assumes no responsibility for any losses that may arise from the use of this information. The views and opinions expressed herein are based on current market conditions and are subject to change without notice. No representation is made that any forecast or projection will be realised.

Information included in this document is intended for those investors who meet the definition of Professional Client under the Swiss FinSA regulation as well as Professional Client or Eligible Counterparty under the UK Financial Conduct Authority.

Confidentiality

This presentation and the information contained herein are confidential. Each copy of this presentation is addressed to a specifically named recipient and shall not be passed on to a third party. By its acceptance hereof, the recipient agrees to keep the presentation and its contents strictly confidential and may not disclose or divulge any information contained herein to any other person. This presentation cannot be published, copied, reproduced or distributed in any manner whatsoever. The recipient will use this presentation for the sole purpose of obtaining a general understanding of the business, operations and financial performance of Bedrock in order to make a decision as to whether the recipient should proceed with a further investigation of the Funds and this investment opportunity. Bedrock reserves the right to request the return of this presentation at any time, without the retention of any copies by the prospective investor.

Investment Risks

The value of all investments and the income derived therefrom can fluctuate due to market movements and you may not get back the amount originally invested. In the case of overseas investments, values may vary as a result of changes in currency exchange rates. This may be due, in part, to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the portfolio. Past performance is no guide to or guarantee of future performance. Investments in fixed income carry risks including credit risk, interest rate risk, and liquidity risk. The value of investments can go down as well as up, and you may not get back the full amount invested.

Limitation of Liability and Indemnity

Bedrock expressly disclaims liability for errors or omissions in the information and data contained in this document. No representation or warranty of any kind, implied, expressed or statutory, is given in conjunction with the information and data. Bedrock accepts no liability for any loss or damage arising out of the use or misuse of or reliance on the information provided including, without limitation, any loss of profits or any other damage, direct or consequential. You agree to indemnify and hold harm less Bedrock and its affiliates, and the directors and employees of Bedrock and its affiliates from and against any and all liabilities, claims, damages, losses or expenses, including legal fees and expenses arising out of your access to or use of the information in this presentation, save to the extent that such losses may not be excluded pursuant to applicable law or regulation. Any opinions contained in this presentation may be changed after issue at any time without notice.

Copyright and Other Rights

The copyright, trademarks and all similar rights of this presentation and the contents, including all information, graphics, code, text and design, are owned by Bedrock.