Why bonds shine: Western Asset Management

Bonds were one of the best and most reliable hedges against equity market risk, according Western Asset Management. 

The fund manager held true to these comments, despite that it said that global bond yields had fallen to record lows, while some developed equity markets reached new highs.

West Asset Management highlighted these findings, among others in their whitepaper, ‘bonds live to die another day'.

The paper pointed to historical evidence which showed that if you added bonds to an equity portfolio, it greatly reduced risk, without sacrificing returns.

"Bonds should produce low but positive returns over the medium term and the equity-bond correlation is likely to be low but positive," the fund manager said.

Portfolio manager Andrew Cormack, said, Australia's pension industry was one the fastest growing retirement sectors in the world.

Assets had grown at 9.2 per cent per annum and outpaced the global average of 3.9 per cent (from 2005 to 2015), while the total asset system was projected to exceed $3.5 trillion by 2025.

The paper found, superannuation had become the largest household asset, outside of the family home, but Australians were increasingly concerned that they didn't have sufficient capital to meet their retirement needs.

"Savers much choose between increasing their level of savings today, at the cost of current consumption or seek higher returns in their existing stock of assets," Cormack said.

Equities looked expensive, and so too did bonds. But, if investors adopted a flexible approach to bonds, they would have an increased chance of receiving income when equity markets were weak, said Cormack.