Defence: First and foremost in a volatile market – capital preservation Most bond investments are designed to provide regular income and capital preservation. As such, they are generally considered to be a lower risk investment than stocks. Despite the current volatility, the nature of bonds hasn’t changed and it is important to distinguish between short-term price movements and actual capital loss. Even if a bond’s price changes in the short term, as long as the issuer of the bond remains solvent, an investor’s capital should be repaid in full. As the chart to the right shows, historically, bond market declines have been much less severe than the stock market declines in volatile periods. Income: A reliable, consistent stream Earning income is an important goal for many investors and they have often relied on bonds to help them achieve it. Bonds generate income in the form of set payments, or interest, so investors get reliable income even in difficult market environments. Combining different bonds across the global bond markets allows bond managers to seek out the best income-generating ideas in any market climate, targeting multiple sources of income from a global opportunity set. As always, we encourage investors in bonds to consider a longterm time horizon. Holding bonds for the longer-term allows investors the benefits of realising the cash flows from these interest payments in the form of total returns and income. Diversification: Reducing overall portfolio risk Bonds have historically enhanced an investor’s ability to reduce volatility and overall portfolio risk while maintaining attractive returns. Because they generally have a low or even negative correlation to stocks (i.e. they tend to react differently to the same market event), they offer the potential for greater return stability. Take this chart as an example: adding a 40% bond allocation to complement the stock portion of the portfolio, reduces the volatility from 13.28% to 7.83%, while only reducing the average return by 0.05%. Even in today’s more volatile environment, we believe the reasons to hold bonds haven’t changed and that investors that stay the course during this period may be better placed to achieve their long-term financial goals. Download Download