This is a sponsored advertorial from BNP Paribas Asset Management.

As Q2 2026 begins with ongoing volatility and the Middle East crisis remains unresolved, Vicky Browne, investment specialist in global aggregate and absolute return at BNP Paribas Asset Management (BNPP AM), explains why unconstrained absolute return bond strategies, which provide diversification, downside protection, and more stable returns across cycles, are now vital for constructing resilient portfolios.

Q1: Where does an absolute return bond strategy sit in a portfolio today, and what exactly is it designed to do?

BNPP AM: We designed our global absolute return bond strategy with the aim of delivering positive performance across the cycle, in both bull and bear markets, and to outperform a cash benchmark. A core objective is smooth, consistent returns with a strong emphasis on capital preservation: we operate to a soft rolling 12-month drawdown target of no more than -2.5%, although drawdowns may exceed this in the short term if the market environment is volatile.

We achieved this through an unconstrained global fixed income mandate. Being free from index constraints allows us to seize opportunities across developed market rates, emerging market debt, investment grade and high yield credit, structured securities, and, selectively, forex. 

The strategy also exploits a -4 to +4-year duration range, allowing it to position itself to potentially benefit from yields moving higher or lower. 

Compared with its peer group, performance was strong, with fund returns and Sharpe ratios ranking in the top quartile over the past three years when evaluated annually.

Q2: Given the evolving fixed income environment, what are the observations regarding portfolio allocations?

BNPP AM: The post-pandemic environment has fundamentally altered the drivers of the bond market. We are now observing increased return dispersion driven by ongoing geopolitical tensions, unpredictable growth and inflation patterns, and rising fiscal pressures in many economies. 

This makes narrow, benchmark-focused strategies more vulnerable. Investors are increasingly favouring flexible, unconstrained approaches that can rotate across regions, sectors, maturities, and instruments to deliver positive, uncorrelated returns throughout the cycle.

Q3: How do absolute return bond strategies manage interest rate risk, and can you provide a recent example of how this was implemented?

BNPP AM: Interest rate risk is managed dynamically within a +4 to -4 year range and exploits the global remit, so it’s much more flexible than traditional fixed income strategies. Given our unconstrained approach, if we do not see asymmetric opportunities in duration, we simply will not take on the risks. We do not have to invest in a sector if we are not well compensated for taking risks. 

However, at this point, we do see strong asymmetry in interest rates and have recently increased both developed and emerging market duration to position with a strong long-duration bias at the strategy level, which is a core way the portfolio is defensive. 

This positioning is focused on markets where we are sceptical that central banks can pivot as hawkishly as markets have priced in, or where we see fundamentals warranting further easing. At the same time, we have adjusted positioning to benefit from yield-curve steepening in select markets where we believe the term premium is depressed relative to historical levels.

Q4: Are there specific market segments that contribute value within this approach?

BNPP AM: A global, unconstrained remit allows us to access a wide range of opportunities and exploit areas of the global fixed income landscape with greater asymmetry. An example of a segment we prefer at this point is local emerging markets duration, which we added to after the March sell-off in duration. Buying emerging markets duration at these attractive entry levels helps to lift the yield of the book and underpin future returns. BNP Paribas Asset Management’s emerging market team also favours local currency over hard currency debt. 

Q5: Is an absolute return bond strategy intended to replace traditional fixed income in a portfolio, or should it be used alongside other fixed income investments — and why?

BNPP AM: Alongside is the right place. This is a long-term, core, evergreen solution — not a tactical “buy-in, buy-out” trade. Deploying an absolute return bond strategy alongside traditional fixed income assets, such as high yield and emerging market allocations, diversifies risk, shifts the investor’s efficient frontier, and adds flexibility and sources of return that we believe many traditional fixed income products do not offer.

Q6: How do active research and global expertise influence your strategy?

BNPP AM: Executing unconstrained fixed income strategies demands specialised expertise. Our approach to pursue the global unconstrained fixed income universe involves working closely with the fixed income teams within our Global Fixed Income platform. 

We seek to generate the best ideas from across the unconstrained multi-sector universe by leveraging their vast expertise, whether in US agency mortgage-backed securities or European inflation. 

We believe that sharing information and respectfully challenging each other allows us to best exploit the vast universe and ultimately deliver better outcomes for our clients.

Global absolute return bonds in context

 

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Source: BNP Paribas Asset Management, as of end March 2026. No assurance can be given that any forecast, target or opinion will materialise.

INVESTMENT RISK

Investments are subject to market fluctuations and other risks inherent to investing in securities. The value of investments and the income they generate may rise or fall and it is possible that investors may not recover their initial investment.

Disclaimer

This advertisement has not been reviewed by the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission. It is produced for information purposes only and does not constitute 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Investments involve risks. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not indicative of current or future performance. Investors should read the offering document for further details including the risk factors and should seek advice from a financial advisor before investing. This material is issued and has been prepared by BNP PARIBAS ASSET MANAGEMENT Singapore Limited, with its registered office at 20 Collyer Quay, #01-01, 20 Collyer Quay, Singapore 049319, Company Registration No. 199308471D and BNP PARIBAS ASSET MANAGEMENT Asia Limited, with its registered office at Suite 1701, 17/F, Lincoln House, Taikoo Place, Quarry Bay, Hong Kong.

This is a sponsored advertorial from BNP Paribas Asset Management.