In this edition...
- Vietnam: Asia’s rising star Roderick Snell, Pacific Horizon Investment Trust Manager - Baillie Gifford & Co
- Sustainable investing and suitability , A2Risk
- FCA’s wave of regulatory changes moves the UK sustainable investment industry into a new era Jonathan Griffiths, CFA - Investment Product Manager - ebi
- Cutting out the middleman: The future of research and due diligence looks different from the past Eric Armstrong, Client Director - Synaptic
- Ten common investment mistakes to discuss with clients Anthony Champion, Managing Director - Head of Intermediaries - Brewin Dolphin
- Maintaining competence, enhancing knowledge, identifying & mitigating risk Gillian Tait, Managing Director - Competent Adviser
- DFM due diligence and the role of financial strength consideration Guy Vanner, Managing Director - AKG
- Active v passive: why pick a side when you can blend? Katie Sykes, Client Engagement & Marketing Manager - RSMR
- Can bonds compete with equities when it comes to yield? Roger Webb, Deputy Head of Sterling Investment Grade - abrdn
- Three reasons to put cash to work today , HSBC Global Asset Management
We believe it’s time for fixed income to take it rightful place in diversified portfolios. According to recent prints from a wide range of economies, global inflation has yet to be tamed. The impact of rampant inflation has been felt across asset classes, presenting a material challenge for investors. But its legacy is a compelling opportunity.
Ready to compete
While government bond yields have proved to be rather volatile as policy rate expectations change dramatically, they are at levels significantly above those seen in most of the last 10 years. As a result, bonds can finally compete with equities as a yield-generating asset class.
Investment grade credit in the UK and US offer well over 5% yields. High-yield markets are giving us more than 7%. Clearly, traditional income-generating assets are back in play.
Lower risk?
While other assets offer both income and the scope for capital gains, bonds can now take their rightful places in diversified portfolios. We believe they currently offer a lower-risk source of income.
That’s not to say that bonds are risk-free. But the yields available provide a decent amount of comfort, as well as the potential for inflation-beating returns. In an uncertain world, we think the case for holding bonds in your portfolio is stronger than it has been for some time.
"Potential for inflation-beating returns."
Something for everyone
The enormous bond universe offers something for everyone. Each type of bond merits consideration for a place in a diversified portfolio.
As we've mentioned, high-yield corporate bonds can offer yields approaching 8%. While that market comes with risks if the global economy slows, it also offers scope for capital appreciation if the macro situation continues to improve.
Building stability
At the other end of the spectrum, government bonds can, once again, offer potential stability in a diversified portfolio of risky assets. The risk to this asset class primarily comes from the best possible economic outcome, where growth picks up and inflation comes back. But this situation is likely to help those riskier asset classes.
Investment grade credit should offer a little bit of both. Investment grade yield is made up of a combination of underlying government bond yields and credit premiums, also known as spreads. A negative economic outcome may cause those spreads to rise but would force yields lower. While a positive economic outcome may push up yields but keep a lid on those spreads.
"Bonds of all shapes and sizes are returning to popularity."
Back in the game
Bonds of all shapes and sizes are returning to popularity. Yields are competitive and relatively attractive; markets are liquid and accessible, and bond volatility is likely to be materially lower than equity volatility.
You can read more about our investment expertise across key asset classes, regions and markets here so you’re prepared for those client conversation when they arise.
Alternatively, visit our website or contact us to hear more.
www.abrdn.com/en-gb/intermediary
#InvestingForIncome
Source for all data is Bloomberg as at 26th April, 2024. For illustrative purposes only. No assumptions regarding future performance should be made.
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