More than three quarters of U.S. institutional investors are expecting interest rates and inflation to remain elevated for at least the next 12 months, putting fixed income investments in pole position to generate the best returns in 2024.

A new report from CoreData also reveals that these organizations are tiring of active equity strategies that are underperforming with four in ten offboarding those that do not hit the mark. A similar share is raising their hurdle rates for risk assets.

The current rate and inflation environment is influencing low-risk strategies with attractive risk-free yields available. Respondents have raised strategic allocations to government bonds/cash-like investments (43%), slowing new investments into risk assets (43%), and trimming their exposure (30%).

Not that active strategies are off the table. In fact, 54% of poll participants expect their actively managed equity strategies to deliver strong outperformance in the next year, while expectation for equities overall is muted with 35% bullish on U.S. equities in the next three months compared to 45% bearish. Just 10% are bullish on Chinese equities over the same period vs. 78% bearish.