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What is the future for fixed income? In an uncertain macroeconomic climate, it’s hard enough to predict what might happen tomorrow, let alone take a long-term investment view encompassing potential political and business cycles. That uncertainty can spread to even the safest of investments, and it feels like bonds in particular are being given a cold shoulder.
Equity markets have continued their bull run, in spite of Donald Trump’s bombastic take on the presidency (or because of it, if you believe his account). Bond markets have rather fallen out of favour; a shelter from the storm is all well and good, but in the public conscience, when an investment returns less than inflation, it’s like a shelter slowly filling up with water.
But there are signs that perceptions are turning. There are some very tough questions for active evangelists to answer when it comes to the fundamentals underpinning most equity markets. It’s not just the added security that should be a draw. When Treasury and emerging market yields are outstripping inflation, there is also an income case to be made in conjunction with the obvious benefits of a diversified portfolio.
There are plenty of fish in the fixed income sea. If anything, the market trends present a compelling case for further diversification, and diversification that should not be limited to asset classes outside of fixed income. As our contributors for this supplement note, options in the strategic and absolute return sectors, as well as short and long-term durations, can often be overlooked.
Performance rarely lies, and not all managers are alike either. Some have clearly made bad calls, but others will make good ones that will be to the benefit of both advisers and clients. Be it by geography, duration, structure or yield, there are opportunities out there, however tough they are to find.
So, fixed income may be a tough sell, but one that still has a place in 2018, and the IFA community has a key role to play, with deep fact-finds and risk tolerance exercises helping to put a number on the right fixed income allocation for each client. If advisers want to stick to a traditional 60:40 allocation of equities and bonds, that is all well and good, but at a time where suitability requirements are being picked at with a fine tooth-comb, they would do well to illustrate why the rest of the options on the table did not suit their client’s needs.
by Emma Simon
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Stability in a sea of uncertainty
Find out more at AXA IM’s Invested In Tomorrow site
The Future of Fixed Income: What you and your clients need to know.
Introduction by Justin Cash - Editor, Money Marketing
Features + Contributors
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