Fixed income offers 'absolutely zero protection'
Fixed income offers “absolutely zero protection” as a hedge to equities, as the COVID-19 pandemic showed it is no longer negatively correlated, according to Saxo Markets.
Speaking at Saxo’s Annual Fintech Unfiltered Conference, Steen Jakobsen, Saxo Bank chief economist and chief investment officer, said the 60/40 portfolio split would be under attack as equities and fixed income were no longer negatively correlated.
“It is 100% correlated as we saw back in February and March but it also doesn’t give you any carry, that has been a huge part of the return you’ve seen from the 40% fixed income,” Jakobsen said.
“Those 40%, to some extent, will probably remain in place because a number of asset managers in the world are under a regulatory burden to maintain a very high proportion of fixed income.
“But family offices, hedge funds and banks will increasingly move, in my opinion, to two new asset classes that offers huge protection against the volatility in the new environment.”
Jakobsen said those two asset classes would be real estate and inflation-linked bonds, but also anything in between.
“The interesting thing is, you don’t even need to be right about inflation, you just to be right about reflation and the re-allocation of assets out of fixed income to a much smaller pool of assets called inflation linked,” Jakobsen said.
“In a world where we are giving up on the fiat system, where we are monetising debt directly, where we are seeing an increase in deglobalisation and other factors like the youth being priced out of real estate, the overall risk here is we will have a reflationary environment – it’s very likely with the monetisation of debt directly from central banks that we’ve seen a game changer.”
AUTHOR
Chris Dastoor
Recommended for you
Grant Hackett has been promoted from CEO of Generation Life to head up the wider Generation Development Group.
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
