The credit asset class offers investors a variety of options with attractive risk-return characteristics.

History shows us that over the long term, corporate bonds have provided diversification and helped to reduce portfolio volatility. This is because they can provide positive returns in years when equity markets decline.

Aside from the diversification benefits, credits also have income-generating ability and investors have historically allocated to this asset class to benefit accordingly. Income return is a substantial driver of longer-term bond returns. With yields now increasing, the ability to generate higher income in the future has increased substantially.

Investing in credits means you’re getting exposure to the credit cycle. This describes recurring phases of easy and tight borrowing and lending in the economy. By understanding where we are in the credit cycle, the Robeco team can identify the best opportunities in the credit markets.

With the repricing of fixed income markets, corporate bond yields have risen sharply and now provide an attractive entry point from which to build back bond exposure in a portfolio.

Higher rates and credit spreads could enable investors to earn higher income in the coming years. With the economic outlook becoming more challenging, we think it's very likely that bonds could go back to being a hedge against equity market volatility. We therefore believe that investors should consider building back bond exposure.