Bonds still have their place
Investors are being urged not to overlook the potential benefits of bonds, as a way of mitigating against shocks from volatile equities markets, AllianceBernstein (AB) believes.
AB London-based fixed income portfolio manager, John Taylor, said bonds "still have an important role to play in portfolios", despite yields being at historic lows.
"It's no secret, that looking beyond the front door to global bond markets can help investors improve their risk-adjusted returns," he said.
"Although the bonds referred to in media headlines are usually government securities, bond markets are actually quite diverse.
"In addition to government bonds, they include corporate bonds or credit and other, more specialized, securities, such as mortgage-backed bonds."
Taylor said this diversity becomes even greater when global bond markets are taken into account, with global government bonds include those issued by sovereign borrowers in most if not all developed economies and many emerging economies, which provides the opportunity to reduce risk and improve returns, through fact that different countries tend to be at different points in their economic and monetary-policy cycles at any given time.
"This is particularly the case now, when global divergence in policy cycles lies behind much of the volatility being experienced by financial markets," said Taylor.
"For example, although the Fed is raising rates in the US, Japan is still in the middle of a quantitative-easing programme—indeed, the Bank of Japan recently became even more accommodative by introducing a negative interest-rate policy—and we expect Europe to expand its quantitative-easing programme in March."
He added that the same held true when non-government or corporate bonds were taken into account, with research showing that an investment into global government bonds hedged back into Australian dollars between January 2001 and December 2015 resulted in annualized returns of 7.63 per cent compared to 6.14 per cent invested in Australian government bonds.
Recommended for you
Janus Henderson has seen intermediary outflows in the second quarter of US$1.2 billion, although its deal with insurer Guardian means overall net flows are US$46.7 billion.
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
