Expert: David Roberts, Bond Fund Manager, Nedgroup Investments Facilitator: Ralph Jackson, Independent Consultant
Headlines:
- Role of politics and economics in bond markets: long-term economic trends over short-term political events
- Complacency among bond managers and the shift to riskier assets
- Opportunity in core government bonds: inflation-beating returns at attractive yields
- Global, diversified approach to bond investing: focus on hard currency g7/g10 bonds
- Impact of economic indicators and upcoming elections on bond markets
- Importance of stability and value in bond portfolios
Context:
The discussion included the benefits of core government bonds, the impact of economic indicators, and the implications of upcoming elections on bond markets.
Role of politics and economics:
While politics can influence markets in the short term, long-term economic trends tend to have a more significant impact, especially for core government bonds. It was emphasised that economic policies of major parties may not differ as much as headlines suggest.
Mistakes made by bond managers:
Many bond managers have become complacent, shifting to riskier assets like equities and high-yield bonds to justify their existence during low-yield environments, instead of focusing on stability and value.
Opportunity in core government bonds:
With current yields at more attractive levels, core government bonds can provide inflation-beating returns through income and potential capital gains. Historical data supports the value of starting with higher yield levels for better long-term returns.
Global, diversified approach:
A global strategy focused on hard currency G7/G10 bonds, hedged against currency risk, and avoiding high-yield and riskier assets was advocated. This approach aims to provide stability and value to client portfolios.
Economic indicators:
Monitoring inflation, unemployment, and real earnings growth is crucial for understanding their potential impact on bond markets. These indicators provide insights into market performance and investment strategies.
Upcoming elections:
The upcoming US presidential and UK general elections could influence bond markets. However, from an economic perspective, the differences between major parties may not be as significant as the headlines suggest.
Key takeaways:
- Incorporate core government bonds - Consider the role of core government bonds in client portfolios to achieve inflation-beating returns through income and capital gains at current yield levels
- Adopt a global, diversified approach - Evaluate the benefits of focusing on hard currency G7/G10 bonds, hedged against currency risk, while avoiding riskier assets
- Assess election impacts - Examine the potential impact of upcoming US and UK elections on bond markets, focusing on the underlying economic policies of major parties
- Monitor economic indicators - Keep a close watch on inflation, unemployment, and real earnings growth to inform bond market investment decisions
- Maintain stability and value - Ensure bond portfolios are centred on providing stability and value to clients, rather than drifting into riskier assets or trying to fulfil all roles
- This comprehensive approach to navigating market uncertainty emphasises the importance of long-term economic trends, the strategic role of core government bonds, and the need for a global, value-driven investment strategy
