Tackling low yields in uncertain markets
As interest rates stay low, government bonds are not the only option as defensive plays.
In the blink of an eye, we are already halfway through what has been a relatively eventful 2019.
Prices of most asset classes have been fluctuating notably in the past year. As shown in the chart below², annualised volatility of most asset classes in the past 12 months to 31 May 2019 is higher than the annualised volatility for the past two years.
As stocks and bonds have become more volatile, and this could likely persist in the near term, managing volatility is key as investors navigate the markets in the second half.
Annualised volatility of different asset classes (%)
Amid market uncertainties, a multi-asset strategy with a fixed income bias could help cushion volatility of some risk assets as fixed income, while still carrying some risks, is generally considered a more conservative asset class compared with equities.
As the chart shows³, a conservative multi-asset portfolio with a 30/70 equity and bond mix, for example, demonstrates volatility lower than a pure equity portfolio while delivering returns comparable to these single-asset portfolios.
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Fixed income is a broad universe covering a range of different sectors. In addition to traditional sectors such as government bonds and investment-grade corporate bonds, fixed income also includes non-traditional segments such as securitised debt.
Amid heightened trade tensions and slowing global growth, investors will likely face a challenging investment environment going into the second half of 2019. A multi-asset strategy with a fixed income bias could help add portfolio resilience while delivering consistent income.