If returns on global equities flatten out over the next 12 months, investors shouldn’t look to the bond universe to juice their portfolio returns because, according to asset managers and allocators, that’s simply not what fixed income is designed to do.

As the bull market in equities reaches its 11th anniversary, a vocal and growing minority of market commentators are warning that returns on traditional asset classes may be flat, if not negative, in the years to come. Should equity markets lose their strength, investors aren’t likely to find solace in bonds.

And that's because economic growth – and interest rates with it – are expected to remain low over the next year, said Gautam Khanna, senior portfolio manager at BNY Mellon’s Insight Investment.

“There are a lot of concerns from a global perspective in terms of growth rate,” said Khanna. “There are concerns about disinflation, whether it’s related to demographics or the amount of debt outstanding in the system, all of that suggests that maybe the Fed is going to remain on the sidelines for a period of time. It may be a quarter or two before we get enough new data to justify a shift from their current policy stance.”

Since fixed income returns are strongly linked to interest rates, lower-for-longer global monetary policy means that returns are also likely to be lower for longer.

It’s not that growth will be negative, said Jon Adams, senior investment strategist at BMO Global Asset Management. But with trade concerns easing and investor worries over geopolitical conflict in the Middle East dissipating, some moderate growth is possible simply because the outlook on U.S. and global policy has improved.

“We’ve had a flurry of positive policy surprises to close out 2019,” said Adams. “Thus, our policy outlook has turned more supportive, and that’s a positive for risk assets in general. It gives us more conviction in our overweight equity view.”

Adams said that many of the problems that market bears point to, like student loan debt, growing concern over subprime auto loans and a slowdown in commercial real estate, are not in areas of the market significant enough to cause recession.

Jeffrey Elswick, director of fixed income at Frost Investment Advisors, agrees that recession is not likely in the near future but warns that the global economy is likely to encounter challenges in the year ahead.

“We started saying this to clients quite a few years ago, but we feel like this macro cycle has several more years to go – at least, that’s the scenario with the highest probability,” said Elswick. “The probability of recession goes up every single year, we’re 11 years into this bull market, and we also have some near-term challenges.”

Challenges might be a good thing for fixed -ncome investors. Bonds often display a tendency to move in opposite directions from equities, so while a major geopolitical shock like the U.S.’s rocket attack that killed Iranian general Qasem Soleimani on Jan. 3 sent equity markets tumbling, it had an inverse effect on the Bloomberg Barclays Aggregate Bond Index, sending the largest index of investment-grade bonds higher.

Such events are difficult, if not impossible, to predict, but there seems to be some consensus around a GDP growth rate near 2% for 2020, just barely beating inflation. Elswick said that muted economic growth probably means 2% to 2.5% returns from fixed-income investing, but more positive economic news could cause the bond universe to go negative.

“All you have to get is a little bit better economic data coming from outside the U.S., and a little bit of improvement in investor sentiment, and that would make us too optimistic,” said Elswick. “Instead of the 10-year Treasury rising 30 basis points, it could rise another 30 or 40 on top of that,” causing a broad swath of the bond universe to lose value unexpectedly.

The managers differed on where investors can go if they want to eke some more significant returns out of the fixed-income portion of their portfolio.

Michael Natale, head of intermediary distribution at Northern Trust Asset Management, believes that with interest rates low, it’s a good time to invest in high-yield bonds.

“High yield is something we’re very high on,” said Natale. “We believe in a lower-for-longer rate environment. In that environment, there will be lower concerns around the defaults. We think, with spreads being in a positive place, high yield is a place where we can get positive returns.”

Khanna warned against seeking generic beta in the high-yield space and called for investors to use an active manager to avoid lower-quality investments.

Since fixed income is best looked at as a low risk, lower returning asset, Khanna also called on investors to embrace some longer duration bonds in their portfolio so that they might take better advantage of their diversification benefits.

“We do see value beyond the corporate space in structured products,” said Khanna. “These are asset-backed-securities instruments where you are secured with some underlying collateral on a pool of loans, and it requires more of a statistical analysis than an idiosyncratic analysis.”

Elswick, on the other hand, calls for investors to become more conservative and shorten their durations, noting that some value opportunities can be found in the “riskier” sectors of high yield.

“We would recommend selling, underweighting or otherwise reducing allocations to 15-year and 20-year investment-grade corporate bonds—even 10-year bonds,” said Elswick. “Even in the rates markets, Treasuries and other sectors like agency mortgage-backed securities, we would lighten up. The risk-reward of rate risk is uncompelling.”

Adams, who fell on the long-duration side of the argument, posited that emerging market bonds might be a better play for investors than the high-yield universe.

“Emerging-market central banks have a lot of room to ease policy, contrary to developed markets, if needed,” said Adams. “U.S. high yield looks really stretched. It looks tight given the economic growth we’re seeing., and to that point, we’ve seen a modest pickup in defaults.”

While all of the managers and allocators called for investors to seek an actively managed approach to fixed income, Khanna doubled down on the call by arguing that advisors and their clients should also avoid the urge to take a sector-by-sector approach to bonds.

“In fixed income, there’s no debate [that] there’s plenty of opportunity for active managers because it’s so inefficient,” said Khanna. “Financial advisors should be looking for a manager who has the resources to research fixed income and actively shift things around. If they’re just hiring a high-yield manager, a loan manager, an investment-grade manager, they’re taking on the responsibility of moving the asset allocation around themselves, and I’m not sure advisors with a small team around them will be able to go deep enough to orchestrate and understand all the different permutations and combinations of risks.”