Short-term fixed income: a valuable alternative for conservative investors

Markets have started the year with significant volatility, primarily driven by geopolitical tensions, decisions made by US President Donald Trump, and expectations regarding economic growth and interest rates. Despite this complex environment, there are still valuable opportunities for even the most conservative investors—particularly in assets such as short-term fixed income.

As defined by the Spanish National Securities and Exchange Commission, fixed-income assets encompass “a broad range of negotiable securities and money market instruments issued by companies and public institutions, representing loans these companies receive from investors.”

Fixed income can be either private or public, depending on the issuer, and maturities can vary widely—from three months to 50 years. Duration is a key factor to be taken into account when investing in this asset class due to the risk of interest rates rising, which will be greater the longer the term remaining until the asset’s maturity. Short-term fixed income typically has a maturity of 18 months or less, a duration that allows investors to protect themselves from interest rate risk.

This factor has become particularly important in recent years. After nearly a decade of negative interest rates, central banks such as the European Central Bank (ECB) and the U.S. Federal Reserve (Fed) began a cycle of rate hikes to combat inflation. More recently, these institutions have started reversing that trend with rate cuts.

“Investors have few conservative alternatives right now and are being forced to seek higher returns in riskier assets such as equities. In today’s uncertain environment, conservative investors can still find value in short-term fixed income. It is an attractive asset with low risk,” says David Iturralde, Director of Fixed Income Investments at MAPFRE AM, the asset management division of the MAPFRE Group.

What is MAPFRE AM's short-term fixed income strategy?

The firm has recently merged two of its historical funds to create a renewed alternative for conservative investors. Thus, Fondmapfre Ahorro FI was created, maintaining risk level two and beginning its new phase with 240 million euros in assets.

This vehicle, managed by Iturralde, invests 100% of its assets in public or private fixed income, with an average portfolio duration of one year or less. The minimum rating of the bonds in which it will invest is BBB- or equivalent, and the reference indices will be the ICE BofA Euro Treasury Bill Index and the ICE BofA 1-3 year Euro Large Cap Corporate Index.

The Director of Fixed Income Investments at MAPFRE AM argues that this fund will allow investors to hedge against inflation, in a context where price increases are already under control, but risk still persists.

MAPFRE AM is Spain's largest independent asset manager and has been managing the Group's balance sheet for 35 years, with more than 80% invested in fixed income, giving the firm extensive experience in this asset class.