For about a decade, the mantra was stocks or nothing. Equities have done well since the Great Recession. Low interest rates, a steady economy, and tech firms’ revenue generation drove equities as the asset class du jour. Fixed-income assets performed poorly, so equities’ returns came at their expense.
However, bonds may have the last laugh.
Now may be the time to allocate heavily to fixed-income assets. Strong yields and potential capital appreciation may help bonds outperform stocks.
The Equities Market Is Lopsided
The equity market is volatile because a few key stocks show strong growth. The technology sector has reached new heights. Artificial intelligence (AI) drives this, and investors want to repeat past success in a slow economy. Currently, tech stocks have the highest concentration in major indices in 50 years.
U.S. equities now account for over 70% of the MSCI World Index.
This market-cap imbalance worsens when we see who drove returns. The Magnificent Seven’s impressive performance, including Apple Inc and Microsoft Corp, now accounts for over 18% of global GDP.
The group’s influence on U.S. and global equity markets is a challenge. High valuations and economic uncertainty add to this challenge. As a result, stocks are expected to perform poorly in the next few years.
A Better Bet in Bonds
BNY’s ‘Insight’ investment subsidiary may have a better solution. The asset manager suggests investors allocate aggressively to bonds and fixed-income assets as the new year begins. This strategy could prove insightful. Insight says several factors now make bonds the best bet in the current market.
The 2008 credit crisis and Great Recession lowered interest rates. The U.S. kept rates at zero for almost a decade. Some nations, including Japan and the European Central Bank (ECB), even had negative rates. They charged investors to hold cash for safety. This helped equities surge, but bonds lost value.
Inflation drove rates higher, so many fixed-income assets now yield high. Investors can find yields between 3.5% and 7%. Insight says that since 2000, yield has accounted for 102% of the total returns of U.S. investment-grade bonds. Today, investors can secure better returns from higher starting yields, even before capital gains. Historically, dividends only accounted for about 45% of stock returns. 1
This is clear when you examine average stock market returns and current yields. The asset manager’s chart shows that many bond asset classes could beat the MSCI World Index’s long-term return rate, based on yield.
Source: Insight Investment
The best part is that, thanks to several macroeconomic and fiscal woes, the higher-yielding environment for bonds may persist. Investors continue to demand more yields from their bonds to compensate for rising government spending and political risks. At the same time, the Fed will not be able to cut rates for long, given the rising inflation. The rate cuts, however, should enable several bond varieties to achieve sufficient price gains beyond their yields, leading to outperformance compared to stocks, particularly if the economic climate becomes unstable.
With that, Insight believes investors can get stock-like returns from their bond holdings, helping them reduce volatility and create a path forward to strong long-term gains.
Buying bonds
With fixed income’s potential to outperform stocks, analysts now think that investors may want to consider overweighting bonds in their portfolios. Ultimately, they could deliver equity-like returns without equity-like risk. Yields are high enough to continue driving returns, while their safety will likely provide ballast.
Insight suggests that nearly all bonds are excellent choices, but bonds with a little bit of credit risk could be the best picks. Corporate and junk bonds present attractive yield opportunities. Alternatively, municipal and asset-backed bonds offer enhanced safety while still delivering strong income.
Now, you certainly can cobble together a portfolio of various bond sub-types and asset classes via a basket of Exchange Traded Funds (ETFs). However, many of the new dynamic income, Total Return Bond, or Core-Plus Funds on the market offer an easy, one-ticker way to allocate toward credit and higher-yielding bond types.
Core-Plus and Dynamic Income ETFs
These ETFs were selected for their low-cost exposure to active bond management within the unconstrained, dynamic, and core-plus sectors. They are sorted by their year-to-date total return, which ranges from -1.20% to 2.80%. They have expenses ranging from 0.10% to 0.71% and assets ranging from $63 million to $18.1 billion. They currently yield between 4.20% and 5.50%.
| Ticker | Name | AUM | YTD Total Ret (%) | Yield (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|---|
| JCPB | JPMorgan Core Plus Bond ETF | $5.78B | 2.80% | 5.30% | 0.40% | ETF | Yes |
| BOND | PIMCO Active Bond ETF | $5.5B | 2.50% | 5.30% | 0.71% | ETF | Yes |
| VPLS | Vanguard Core Plus Bond ETF | $138M | 2.50% | 4.80% | 0.2% | ETF | Yes |
| TOTL | SPDR DoubleLine Total Return Tactical ETF | $3.5B | 2.30% | 5.10% | 0.55% | ETF | Yes |
| FBND | Fidelity Total Bond ETF | $18.1B | 2.20% | 5.00% | 0.36% | ETF | Yes |
| AVIG | Avantis Core Fixed Income ETF | $1B | 2.20% | 5.00% | 0.15% | ETF | Yes |
| BINC | BlackRock Flexible Income ETF | $8.14B | 2.10% | 5.50% | 0.52% | ETF | Yes |
| FIXD | First Trust TCW Opportunistic Fixed Income ETF | $4.32B | 2.10% | 4.30% | 0.65% | ETF | Yes |
| DBND | DoubleLine Opportunistic Bond ETF | $413M | 2.00% | 4.80% | 0.45% | ETF | Yes |
| DFCF | Dimensional Core Fixed Income ETF | $243M | 2.00% | 4.60% | 0.19% | ETF | Yes |
| CGCP | Capital Group Core Plus Income ETF | $4.5B | 1.80% | 4.80% | 0.34% | ETF | Yes |
| VCRB | Vanguard Core Bond ETF | $63M | -1.20% | 4.20% | 0.10% | ETF | Yes |
Overall, bonds could be top performers over the next decade, as high starting yields, rising equity risk, and interest rate trends persist. For investors, that means allocating more to the asset class than in the past; those who choose that route could find lower volatility and strong gains for their portfolio.
Bottom Line
After years of underperformance, bonds and fixed-income assets could have the last laugh. With rising equity concentration and risk, bonds could be the better asset class; thanks to their high yields, bonds could outperform over the long term.
1 Insight Investment (October 2025). Time to allocate to fixed income
