This feature is brought to you in partnership with BNY Investments.
Our Q&A with Damien Hill of Insight Investment, a BNY Investments company, examines how higher yields, active management and strategic bond funds are reshaping the role of fixed income in client portfolios.
After a prolonged period where bonds struggled to deliver on their traditional role, the fixed income landscape has shifted meaningfully. Higher yields and improved income potential are once again prompting advisers and portfolio managers to reconsider how bonds can support diversification, resilience and long-term client outcomes, particularly in terms of income generation and capital stability.
But, in today’s complex and uncertain environment, shaped by inflation volatility, shifting interest rate expectations and geopolitical risks, simply allocating to bonds is no longer enough. Active management, flexible strategies and a disciplined approach to balancing credit and duration are becoming increasingly important.
In this context, strategic bond funds can offer advisers a way to access the full fixed income opportunity set, while delegating the underlying asset allocation and risk management decisions to experienced teams.
IFA Magazine’s Sue Whitbread spoke to Damien Hill, Senior Portfolio Manager at Insight Investment, a BNY Investments company, to understand how strategic bond strategies are evolving, how active management can add value, and why consistency of returns remains a key objective for investors in today’s market conditions.
Q | SUE WHITBREAD: How do strategic bond funds contribute to portfolio resilience, especially in today’s uncertain economic environment?
A | DAMIEN HILL: “Strategic bond funds play a crucial role in enhancing portfolio resilience by providing diversification benefits and reducing overall volatility.
“Whilst correlations do not always move as you might expect in the short term, there is a strong degree of forward-looking return asymmetry in bond markets at current levels. Even before considering active management, an allocation to bonds today is very different, and more attractive, than it was back in 2022 for example, simply based on bond maths.
“Why? Global government and corporate bonds are, as we sit here today in Q1 2026, offering yields in the region of 4–6%. Taking an average of around 5%, that represents the forward-looking annualised return investors might expect. The sensitivity of those bonds to interest rate movements is typically around 5–6 years of duration, meaning that for a 1% move in yields either way, returns would adjust by around 5–6% in either direction.
“Importantly, even if yields were to rise by 1% or so, you would still likely generate a slightly positive return over a one-year period, given the starting level of yields. That wasn’t the case back in 2022. Today, both the yield and income cushions are very supportive and help insulate portfolios from potential volatility in rates.
“Strategic bond funds also provide a diversified allocation across fixed income. They are flexible by design, offering exposure across a range of asset classes. For clients who want fixed income exposure but are not actively managing allocations between rates, credit and other sectors, outsourcing to a strategic bond fund can be an effective solution.
“We focus on delivering consistency in alpha generation via both rates and credits, adjusting the balance depending on the markets. Only around 25% of our returns through the cycle come from directional positioning; the majority comes from relative value opportunities. That allows us to generate more consistent outcomes over time, in terms of both income as well as capital preservation, supporting clients’ long-term financial goals without excessive risk.”
Q | SUE WHITBREAD: What strategies do you employ to manage risk and capitalise on opportunities?
A | DAMIEN HILL: “In generating alpha relative to our through-cycle allocations, risk management is key.
“This includes retaining our strongest investment ideas while hedging risk using appropriate instruments. For example, we use bond futures to manage interest rate exposure. Derivatives are used not speculatively, but as tools for risk management and to capture opportunities where the risk-adjusted return is attractive.
“We also use credit default swaps and indices to manage credit exposure efficiently, as well as options strategies that provide protection in a widening environment at relatively low cost. These approaches allow us to protect portfolios without materially impacting current yield or forcing us to sell our best ideas.
“Only around a quarter of alpha comes from directional market moves. The remainder for us is generated through a range of other levers.
“Within rates, we focus on yield curve positioning and market selection, such as UK gilts or US Treasuries. Within credit, we assess relative value across asset classes, including high yield versus investment grade, as well as opportunities across different risk premia such as emerging markets or asset-backed securities.
Even if yields were to rise, you would still likely generate a slightly positive return given today’s starting point, the income cushion is very supportive.
“These multiple levers enable us to generate alpha consistently, regardless of overall market direction.”
Q | SUE WHITBREAD: How important is it to have a well-resourced investment team when managing fixed income investments?
A | DAMIEN HILL: “It is very important. Depth of resource is essential to ensure that we can properly assess the breadth of opportunities across global fixed income markets.
“This enables us to deliver consistent alpha across a wide range of areas, including developed market rates or credit and more specialist sectors such as asset-backed securities or leveraged loans.
“While valuation signals are important, understanding whether an asset is genuinely attractive requires detailed fundamental analysis. This is particularly true in corporate bonds and credit, where different securities issued by the same company can have very different structures and risk profiles.
“Having the resources to conduct that level of analysis is critical.”
Q | SUE WHITBREAD: How do you balance credit risk and duration to maintain resilience in fixed income strategies?
A | DAMIEN HILL: “Throughout the cycle, we aim to maintain a balance in alpha generation between credit and rates, rather than relying on a single source of return.
“There is an inherent relationship between credit risk and interest rates, although correlations can vary significantly over time. To manage this, we conduct regular reviews across both areas, supported by proprietary risk tools that assess correlations and diversification across positions.
“We do not rely solely on recent market behaviour. Instead, we use scenario analysis across different time periods to understand how positions may perform under varying conditions and to assess their diversification benefits.
“Ultimately, our approach is to avoid over-reliance on directional risk. We focus on isolating and exploiting controllable risk factors in order to deliver consistent outcomes for clients over time.”
Q | SUE WHITBREAD: What differentiates BNY Investments, within the fixed income investment space?
A | DAMIEN HILL: “For us, consistency is key, but having a forensic focus on risk management is absolutely critical. That mindset runs right throughout the business. We focus on acting deliberately, adapting when necessary, but always within a strong risk management framework that underpins consistent alpha generation.
“Our fixed income capability has strong institutional roots, particularly in UK defined benefit pension schemes, where we developed risk management strategies to improve funding outcomes. That heritage continues to shape our approach, with a strong emphasis on controlling risk as the foundation for consistent returns.
“We also have a balanced geographic footprint, with investment professionals split broadly between North America and Europe. This helps reduce regional biases in decision-making and supports a more balanced investment perspective.
“Ultimately, I believe that it is not one single factor which differentiates us. Instead, it’s a combination of multiple disciplines, executed consistently, which we believe leads to better outcomes for clients overall.”
Q | SUE WHITBREAD: How important do you believe active management is within fixed income markets?
A | DAMIEN HILL: “Within fixed income, I’d say that active management is essential. The simplest way to see this is to compare alpha generation over time between passive ETFs and active managers. Across fixed income asset classes, so that’s government bonds, corporate bonds and everything in between, even the median manager has tended to generate positive alpha after fees over one- to ten-year periods.
A forensic focus on risk management runs throughout the business and underpins consistent alpha generation.
“Passive ETFs in fixed income face structural challenges. Bond indices can contain many thousands of individual bonds and issuers, making them difficult to replicate accurately. That replication drag leads to negative alpha after fees.
“This differs from equities, where index replication tends to be tighter because each company typically has one stock albeit on different exchanges, whereas the same issuer may have hundreds of different bonds across multiple currencies.
“I’d say that makes active management structurally more valuable in fixed income, particularly in credit markets where there is less efficiency and greater potential for mispricing.
“As a result, information ratios, which measure the consistency of alpha relative to its volatility, are generally higher in credit than in government bond markets.
“Ultimately, active management is essential in fixed income due to the consistency of alpha that can be generated and the structural inefficiencies within credit markets.
“Overall, it’s by doing a lot of things well, including navigating interest rate cycles and market uncertainty effectively, that allows us to deliver consistently for investors.”
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About Damien Hill, CFA Senior Portfolio Manager, Insight Investment, a BNY Investments company
Damien joined Insight in October 2006. Within the Fixed Income Group, he initially joined the Currency Desk before moving to the Credit Analysis Team in January 2008. Damien joined the European Fixed Income Team in March 2011 as a dedicated credit portfolio manager. Damien graduated with a BSc honours degree in Economics and Finance from Bristol University and holds the Investment Management Certificate from the CFA Society of the UK and is a CFA charterholder.
