While returns for bonds are still low, current rates are the best they have been for two years, according to Zenith.
In a webinar, head of asset allocation, Damien Hennesey, was asked about the role that bonds had to play in portfolios when inflation was rising.
“The first thing I’d say about bonds is a positive thing because their return expectations are better than they were for the last two years. So that’s saying something,” said Hennesey.
“It’s not as if they are great [returns] but our return expectations have bonds up around 2%, so it’s hardly world-beating but they do have a role in portfolios.”
According to FE Analytics, the Australian bond sector had lost 1.1% over the last three months to 16 February and declined by 2.7% over 2021.
Hennesey said Zenith had noticed weightings to fixed income were declining more recently in portfolios.
“What we have found in the portfolios we are putting forward this year is the weighting to fixed interest has generally been reduced at the lower risk profiles.
“It tends to benefit cash and, to some extent, defensive alternative strategies. So bonds still have a place but less of a place than they have done in a more bond-friendly environment.”