Investors in passive fixed income funds have missed out on significant growth opportunities over the past five years, driven by increased market volatility, according to analysis by Rathbones Group.
Greater geopolitical and economic uncertainty worldwide has led to a rise in companies having their credit ratings adjusted by agencies, with rising numbers of credit downgrades, so-called fallen angels, and missed upgrades, so-called rising stars.
These shifts create opportunities for fixed income investors – but only active managers are positioned to capitalise on them, according to Rathbones’ latest analysis.
Since 2020, up to 1 August 2025, there have been 119 fallen angels and 83 rising stars: 202 in total.
2020, marked by Covid-19 disruption, was a standout year for downgrades, with 46 companies affected. 17 of these represented the largest share, followed by firms in the consumer discretionary: six, and communications (four) sectors.
In contrast, 2024 saw 21 credit upgrades, led by companies in the financial sector (seven), followed by Industrial and Energy firms (five each).
In the first seven months of 2025 alone, 13 companies have been downgraded to high yield, while eight have been upgraded to investment grade.
“The cost of passivity is becoming harder to ignore. In fixed income, passivity comes at a price,” said Bryn Jones, head of fixed income at Rathbones. “Passive bond funds are designed to follow the index, not the fundamentals, meaning investors are often trapped holding downgraded debt – so-called fallen angels – for longer than they would like.”
“Active management offers the flexibility to act decisively,” he added. “We can sidestep deteriorating issuers before the index reacts, capture rising stars early, manage liquidity in volatile markets, and ensure portfolios align with ethical values. In today’s fast-moving credit environment.”
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