CPD: Fixed Income in a low rate environment

September 22, 2021

Fixed income investments have long been central to a diversified portfolio. This CPD-accredited article explores the role of fixed income in the current environment.

Diversification is a central tenet of modern portfolio theory; that is, diversification both within and across asset classes. At its simplest, the 60/40 equity-bond split has underpinned portfolios for decades; the idea being that the equity component provides growth, while the fixed income provides income and stability. Widely adopted by financial planning models, the 60/40 portfolio dates back to 1926 and has enjoyed an annualised return of 9.1%[1].

While advisers and investors like the capital stability and predictability of returns that fixed income can deliver, can it still be relied upon in the current environment? Is all fixed income created equal? Is a passive fixed income exposure preferable to an active exposure, is a traditional bond fund better placed to deliver than an absolute return fund?

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