Outlook for equity and bond beta challenging, GSFM says

global-equities/fixed-interest/bonds/Grant-Samuel-Funds-Management/

15 June 2018
| By Oksana Patron |
image
image
expand image

The outlook for both equity and bond beta remains challenging and investors should think about their portfolios with regards as to how to incorporate less beta-sensitive strategies, according to Grant Samuel Funds Management (GSFM) adviser, Steve Miller.

He warned that although growth momentum was moving along nicely and supported corporate earnings, policy challenges, especially in the US, might be significant in 2019.

“This is another way of saying that at the margin bond investors need to contemplate portfolios that are more flexible and access diverse sources of risk and not be tied to durations of particular indices,” he said.

Miller also noted that obtaining beta exposure through exchange-traded funds (ETFs) may not be sufficient going forward.

At the same time, equity investors should look at portfolios that could benefit from “stock-picking” acumen or the ability to offset long exposures with short ones, reducing exposure to equity beta.

In terms of correlation between bond and equity returns, it’s hard to predict the current scenario, Miller said.

“In the US, if we do get higher inflation, we may well be migrating back to a period of positively correlated bond and equity returns which, unfortunately in the near term, probably manifests itself first as negative bond and equity returns: inflation, spurred on by a misplaced fiscal stimulus, surprises on the upside leading to an exaggerated increase in bond yields that derail equity markets,” he said.

“On a global scale, therefore, projections of how that return correlation unfolds is difficult. Suffice to say, however, that the commonly held assumption of negative correlation is certainly not inviolable.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months 3 weeks ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months 3 weeks ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 4 weeks ago

ASIC has suspended the Australian Financial Services Licence of a Melbourne-based financial advice firm....

1 week 5 days ago

The corporate regulator has issued infringement notices to three AFSLs whose financial advisers provided personal advice to a retail client while unregistered....

2 weeks 3 days ago

ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test....

3 weeks 1 day ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND