Within fixed income, Ms. Malik suggests that institutional investors focus on high-quality corporate bonds — but in order to generate equity-like returns, they can add moderate amounts of risk by adding to duration.
She added that many of her clients are "generally pessimistic" about the 2023 outlook, with some investors worried that the traditional inverse correlation between stocks and bonds performance may be slow to return, making asset allocation a difficult task.
Ms. Malik said she also likes recession-resilient alternative asset classes such as infrastructure, farmland and private credit in 2023.
Anders Persson, Charlotte, N.C.-based chief investment officer for global fixed income at Nuveen, said by email that institutional investors should consider moving into bonds in 2023. He noted that with most of the Fed tightening behind investors, and markets already discounting additional rate hikes over the coming months, the historic weakness for fixed income in 2022 is unlikely to be repeated in 2023.
"Starting yields are much more attractive, and the vast majority of fixed-income returns are via income, not capital appreciation," he said. "This dynamic is true across the fixed-income universe and this sets up core fixed income for strong returns in 2023 and beyond."
And given that long-term Treasury yields are unlikely to sustain levels above 4% in the face of recession, long-duration bonds should have a "positive expected return," said Jason Vaillancourt, Boston-based global macro strategist for Putnam Investments.
Putnam has approximately $170 billion in AUM.
In addition to housing, Mr. Davies of CDAM also likes high-yield bonds, which are now yielding nearly 9%, more than double from the beginning of 2022.