Bond benchmarks misguide investors

Investors should ignore bond benchmarks if they want to avoid bad investments, according to Brandywine Global Investment managing director and portfolio manager of fixed income, David Hoffman.

While the best run equity companies with the best products grow to encompass a larger share of the equity market, bond indexes were made up of countries that issued the most debt, and that won’t tell an investor anything about whether the debt of a particular country is a good investment, Hoffman said.

“Bond indexes are structured in such a way that it’s not necessarily to the advantage of the investor,” he said.

“A country that has a 30 per cent weighting [in the index], that weighting might be very rich or might be very cheap, so the weighting itself should not be a guide as to how you allocate your portfolio,” Hoffman said.

Bond benchmarks have misguided a lot of people into investments, and can hide a lot of activity in the bond market, he said.

“Investors need to look at where they can get a higher real yield, because the higher the real yield the less likely inflation will evolve in the economy,” Hoffman said.

Brandywine was increasing to an overweight position on the US dollar and moving out of “commodity currencies” such as the Australian dollar, which had a lot of popular investment in the commodities sector, Hoffman said.