Dylan Bourke

Rising interest rates, equity market volatility, and stretched market valuations are seeing investors reconsider the role of fixed income in portfolios, moving beyond diversification to a more active source of return, according to absolute return specialist Kapstream.

This shift comes as credit markets face the unprecedented triple whammy of rising interest rates, demand destruction slowing growth, and increased supply, driven by a record AI-driven bond issuance boom, reinforcing the need for active management and global credit exposure.

“We’re seeing a clear evolution in how investors think about fixed income,” said Dylan Bourke, Kapstream Managing Director & Portfolio Manager. “It’s no longer just about balancing equity risk but generating reliable returns in its own right. “As macro uncertainty and equity market volatility persist, investors are increasingly focused on portfolio resilience, not just returns, and the ‘sleep at night’ factor is an increasingly important consideration in capital allocation.”

However, credit markets are facing challenges with higher rates, softer demand, and more supply creating a divergence in credit quality and performance, reinforcing the importance of active management and disciplined risk selection.

“In this kind of market, broad exposure becomes less effective – it’s about being disciplined, focusing on quality and actively managing risk. Just as importantly, having a global view allows investors to access a wider opportunity set and avoid being overly exposed to any one market,” Mr Bourke said.

Kapstream sees record inflows, ratings upgrade

Against this backdrop, Kapstream achieved record quarterly inflows of over $490 million in the first quarter of 2026 alone, with its Kapstream Absolute Return Income Plus Fund surpassing $1 billion in funds under management.

“In an environment where volatility has become a constant, there is a clear shift toward strategies that can deliver consistent income, downside protection, and capital preservation,” said Daniel Siluk, Kapstream Managing Director & Portfolio Manager.

“Investors are not stepping back from markets, rather they are becoming more deliberate in how they allocate capital.”

Kapstream is a global absolute return fixed income specialist with a diversified client list including super funds, insurers, private banks, and family offices. The Kapstream Absolute Return Income Fund, and the higher-performing alternative, the Kapstream Absolute Return Income Plus Fund, have delivered top quartile net returns with lowest quartile volatility, relative to peers, over the past three and five years^[1] .

It recently expanded its reach among listed investors with the launch of the Kapstream Investment Trust (KIT:ASX). The Listed Investment Trust has already surpassed $200m in funds under management. Likewise, the Kapstream Private Investment Fund has recently surpassed $200m of funds under management.

Reflecting the consistent performance and strong investor demand, leading research house, Zenith Investment Partners, recently upgraded both funds to ‘Recommended’ due to the strength of Kapstream’s disciplined investment approach, its experienced team, and established investment process.

“We’re thrilled at this recognition by Zenith. In the current environment, where investors are focused on managing risk and protecting capital, that kind of independent validation gives added confidence that the strategy is doing what it’s designed to do,” Mr Siluk said.

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