Our view on fixed income investments

“Asset classes like Asian bonds are gaining prominence in portfolios across institutions,” says Arthur Wu, senior investment analyst, at the Investment Solutions Forum 2016 in Singapore.

Nelly Poon 14.06.2016
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Arthur Wu, senior investment analyst, discusses fixed income investments at the Investment Solutions Forum 2016 in Singapore on 2 June. During his session, he suggested that the validity of government bonds as a diversifier is questionable given their low yields. Over the past 5 years, yields fell from around 2.5% to around 0.7% while duration increased from around six years to eight years. On the other hand, asset classes like Asian bonds are gaining prominence in portfolios across institutions.

Q: How important this year are fixed income investments or alternatives like credit notes – which gives you a steady stream of income?

Wu: Fixed income is still very important for the simple reason that there are not many diversifiers available to cushion volatility in equities. Sure, you can use “safe-haven assets” like gold, but you will be exposed to other risks instead. Something to highlight, however, is the evolution of the fixed income asset class, in particular, the classic diversifier: government bonds. At this current juncture, the validity of government bonds as a diversifier is questionable given their low yields. Case in point, over the past 5 years, yields fell from around 2.5% to around 0.7% while duration increased from around 6 years to 8 years. On the topic of yielding products, asset classes like Asian bonds gaining prominence in portfolios across institutions. This is still very relevant for portfolios seeking yields as safer ends of the spectrum offer little to no yields. On our end, our manager research team is increasing coverage on this asset class.

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Nelly Poon  Nelly Poon is an editor with Morningstar.

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