The continued inflationary pressure on markets has highlighted the role bonds can play in a portfolio to help generate income for investors, Tara Jameson, a multi-asset manager at Schroders, has said.
Jameson added: “We've got very used to bonds being a very good diversifier for multi-asset portfolios. That's actually not the only role that they can play in a portfolio. They're actually there as well as an income generator.
“In the world we're in today, I’d probably say the role of bonds right now is possibly more about that income element and the yield that they offer to a portfolio rather than the diversification argument.”
A key approach to hedging inflation risk is being dynamic with your asset allocation, which, Jameson said, meant thinking about what was causing the risk and what might benefit from the risk.
She added: “If you have to accept that correlations might change in that world, you can start to look towards some other asset classes like commodities, for example, which were one of the first causes of inflation.
“We're now kind of moving to more of a core inflation world, which is a little bit different again, but that sort of gives you an example of a starting point.”
Adding to the inflationary pressure is the ongoing trend of deglobalisation, where more companies are reshoring – in some cases wanting to reduce their risks from countries like China – and introducing friction into the global economy.
As well as looking at how to hedge inflation risk, Jameson also talked about how the drive to sustainability is changing multi-asset portfolios.
By the end of this video, which is worth 30 minutes of CPD, you should be able to explain how investors can manage inflation risk, what diversification means for portfolios in a high-inflation environment and to what extent sustainability should be considered in multi-asset portfolios.
ima.jacksonobot@ft.com
This video was recorded on June 21.
