Despite the losses incurred in 2022, sentiment towards bonds among wealth managers has risen to its highest since 2009, according to the latest investor survey from Asset Risk Consultants (ARC).
As bonds and equites fell in tandem last year, based on fourth quarter estimates ARC’s most common portfolio strategy – ARC Steady Growth – fell 9.8% in 2022.
However driven by conventional bonds and the 10-year bond market, ARC’s investor survey shows sentiment to the bond sector is up to 53%, from just 2% at the start of 2022 and the highest percentage since the survey began in 2009.
According to ARC, there is evidence the financial repression of bonds delivering negative real returns may be ending, and with equity market valuations returning towards historical norms investors can potentially expect to achieve real returns once the inflation starts to subside.
“For the first time in over a decade investors need to be paying close attention to the amount of money they invest in bonds alongside the shares they hold in companies,” said Graham Harrison, chairman at ARC. “For more than 10 years investing in bonds has given very little yield or interest income — this has now changed. Bonds are back and, subsequently, so is the traditional balanced portfolio.”
As a result, while Harrison predicts uncertainty to continue this year, with inflation expected to prove “stubborn” and slowing economic growth possibly turning into localised recessions, he is more optimistic in 2023.
“Uncertainty also creates opportunities for discretionary managers and, with equity valuations becoming more attractive and real bond yields improving, there is hope that 2023 will be a better year for investors,” he said.
ARC collects the actual performance of more than 350,000 investment portfolios from more than 140 investment managers and a steady growth portfolio typically has about two-thirds of exposure to equities with the remainder in other asset classes such as bonds.
