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Are bonds making a comeback?
Nicholas Ware, Co-Portfolio Manager of Henderson Diversified Income Trust, talks about the Company’s performance year-to-date, areas where he is finding opportunities and how he is navigating interest rate and inflation risk in a volatile market environment.
24 Oct 2022
15 minute listen
15 minute listen
Key takeaways:
- Geopolitical tensions, elevated market volatility, and tightening monetary policy have engendered a difficult environment for fixed income investors.
- We have been increasing our exposure to investment grade bonds whilst reducing our gearing, thereby reducing the overall risk of the portfolio. We continue to look for non-cyclical, modern day facing businesses with good free cash flow yield.
- We see this as a time for caution and flexibility within the portfolio. However, higher yields are adding to the attractiveness of bonds and investors can potentially earn a higher income while pursuing resiliency during a period of high volatility.
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Glossary
Inflation – The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures.
Inverted yield curve – An inverted yield curve occurs when short-term interest rates exceed long-term rates. Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones.
Monetary policy – The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money
Related insights
24 Oct 2022
15 minute listen
15 minute listen
Key takeaways:
- Geopolitical tensions, elevated market volatility, and tightening monetary policy have engendered a difficult environment for fixed income investors.
- We have been increasing our exposure to investment grade bonds whilst reducing our gearing, thereby reducing the overall risk of the portfolio. We continue to look for non-cyclical, modern day facing businesses with good free cash flow yield.
- We see this as a time for caution and flexibility within the portfolio. However, higher yields are adding to the attractiveness of bonds and investors can potentially earn a higher income while pursuing resiliency during a period of high volatility.