The role of fixed income in a multi-asset portfolio is being challenged in current markets. Typically, high quality bonds such as government debt have been a perfect foil to equity holdings in a multi-asset portfolio.
Correlations between equity and fixed income are not constant through time and fluctuate between positive and negative depending on the timeframe. For example, the rolling 12-month correlation between gilts and the FTSE All-Share index over the past decade has ranged between +0.7 and -0.8. During periods of equity market stress, correlations almost always move strongly negative (bonds rally as equities fall), which dampens down losses suffered from equity holdings. This makes them a handy portfolio management tool. Powering past pandemic fatigue: Who will be the winners from the U...
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