Trustees told to look beyond bonds and equities

Contrary to popular belief, bonds and equities may not be sufficient in providing a stable source of return over the next 10 years, according to one investment manager.

Speaking at an event hosted by the Commonwealth Bank in Sydney, Aspect Capital research director and president Martin Lueck said there is considerable concern among wealth managers about whether “bonds are going to provide a counter-balancing return stream in current portfolios” over the next five years.

“If you look back over the past 10, 20 or 30 years, if you had a very straight-forward balanced portfolio, between just equities and bonds, that was a relatively stable source of return for many, many years,” he explained.

“But the world’s turning now and I think the question is now that with bond yields so compressed in a tough and challenging equity market, are fixed income markets going to provide a counter-balancing return?”

Mr Lueck said there is a risk bonds may not provide the type of diversification alongside equities they have in the past, so investors may need to look for alternative sources of returns, that are adequately uncorrelated with equities.

“There is a question market with bond yields so compressed, whether they’re really going to provide that source of diversification clients have seen over the past 20 years, the next 10 years are going to be very, very different.”

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