Revisiting the role of bonds as investors look to build resilience, manage inflation uncertainty and diversify fixed income portfolios.
Money in Motion
Three ways to build fixed income resilience
Optimise cash allocation
As cash re-emerges as a more deliberate part of portfolio construction, the question becomes how to hold it. Ultrashort strategies and swap-based ETFs can help deploy liquidity efficiently, capture higher income and mitigate reinvestment risk.
Hedge against energy-driven inflation with linkers
Persistent energy disruptions create a more uncertain inflation outlook as firms start to pass on higher input costs. Linkers can offer a hedge and diversifier if inflation proves more durable than expected.
Diversify fixed income sleeves for uncorrelated upside
Exposure to less traditional areas with high real yields, including Japanese government bonds and select emerging market debt, can help reduce portfolio risk while enhancing return potential.
Revisiting the role of bonds
Investors today face three interconnected challenges, exacerbated by the macro impact of the Middle East conflict: persistent inflation uncertainty, the weakening reliability of traditional portfolio hedges, and the need for broader fixed income diversification.
Rising developed market deficits and less reliable stock-bond correlations reinforce our cautious stance on duration, but this does not diminish the role of fixed income altogether. In Revisiting the role of bonds, we make the case for building resilience amid volatility through an expanded fixed income toolkit.