Optimising flexible fixed income as inflation bites
Going across the full spectrum of fixed income to navigate an inflationary environment.
Government bonds and other fixed income sectors have traditionally played an important role in portfolios for their ability to:
However, it has become increasingly challenging for investors to find income as interest rates have reached historical lows in some countries, and even fallen below zero in others.
In 2019, the US Federal Reserve cut rates three times for a combined 75 basis points. Other major central banks have stayed accommodative, with some making deeper cuts into negative territory and restarting bond purchase programmes. Today, over a quarter of the global aggregate bond market, in local currency terms, are negatively yielding.
Size of negative yielding debt market2
Yield can still be found, but may require an active approach to identify the best investing ideas. There are various types of bonds globally and they react differently to market changes such as interest rate movement and economic cycle. When managed properly, this could also mean added diversification1 in portfolios if alternative asset classes are included.
Market volatility and lower yields are expected to stay. It’s time to embrace the challenges, differentiate and invest where opportunities can be found via a diversified1 and flexible approach.
Impact of a 1% fall in interest rates3
Market volatility and price fluctuations persist amid heightened geopolitical risks, a slowing global economy and ongoing trade tensions. The Chicago Board Options Exchange (CBOE) Volatility Index, commonly known as the VIX or the “fear index”, measures market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices.
The “fear index” has gone through a bumpy ride in the past two years, reaching two peaks in early 2018 and early 2019 before easing to about 13 as of end-October 2019. Yet, that was still about 20% higher than the level it began in 2018.
Changes in the VIX since 20184
US Treasuries, securitised debts and investment grade (IG) bonds generally have lower volatility and – more importantly – lower or even negative correlation to stocks. Allocating to fixed income can help build a resilient and diversified1 portfolio.
Yields and correlations of different fixed income sectors to equities5
Capture the vast potential across Asian bonds
Invest in a global portfolio via high-rating bonds
Invest in our highest-conviction, income-generating ideas globally
assets under management (AUM)7
Rich or cheap valuation on:
Multi-dimensional risk management is embedded at every stage of our investment process. Portfolio managers have ultimate responsibility for investment risk, with an embedded risk management function and an independent risk team providing additional layers of oversight.
Used to monitor volatility, correlation and duration
Allows us to test for “worst case” historical and customized scenarios
Ensures regular review of portfolio risk exposures