1. Bonds still likely to outperform cash Investors often overlook bonds in favour of cash or term deposits. They think cash is “safe”, while forgetting that “safety” can be costly – holding cash sacrifices return while not reducing overall portfolio risk. As the chart shows, a portfolio with a 60% allocation to stocks and a 40% allocation to bonds would have achieved a higher return with lower volatility over the long term than a portfolio with 60% stocks/40% cash. It’s also worth noting that even though bond yields are low, they should still remain attractive relative to cash since cash rates are also likely to remain low given the low level of interest rates. 2. Bond still offer a global opportunity set Not all bonds are government bonds. Bonds have evolved into a USD 100 trillion global market, much larger than the global equity market. It is made up of a variety of fixed income sectors, such as investment grade and high yield corporate bonds, emerging market bonds, and mortgage-backed securities. Bond investors can choose from this broad, global array of sectors, each of which offers a different risk/return profile, with some areas providing a higher return for taking on more risk. Combining a diverse set of bonds in a portfolio can provide the defensive qualities expected from bonds while also generating a return above the cash rate. Maintaining a diversified bond portfolio can help investors prepare for shifts in the economy and interest rates, allowing them to capture opportunities while also minimizing the risks of overconcentration. 3. Bonds still act as a diversifier Holding bonds in a portfolio can offer diversification and serve as a hedge against stock market sell-offs. This is because stock and bond prices often move in different directions, which means they generally have a low or negative correlation to stocks, particularly in times of economic uncertainty or deflation. Download Download