Insights

Balancing Act – The Defensive Trade Off in a Challenging Fixed Income Market

Amid difficult trading conditions, Financial Advisers face a dilemma when constructing defensive client portfolios. They need to concurrently address rising inflation, protect against capital loss, and deliver investor income. In this piece Michael Furey (MF), Principal and Asset Consultant at Delta Research & Advisory, and Simon Mullumby (SM), Head of Australian Cash and Bonds at State Street Global Advisors, join forces to help us understand the rapidly changing market landscape and implications.


Simon Mullumby, CFA

Head of Australian Cash and Bonds

Michael Furey, Principal

Delta Research & Advisory


As global economies recovered in the wake of the pandemic, we began to hear the term “transitory inflation”, particularly from the US Federal Reserve (Fed). This referred to an accepted short-term spike in prices as activity resumed. However, the return to a more ‘normal’ pattern of spending wasn’t as expected. What happened was a significant shift from services spending in favour of goods consumption. A persistent COVID overhang largely drove this move as people continued to avoid face-to-face interactions either through choice or because many restrictions remained in place. As a result, we saw higher demand for physical goods, which was met by supply-chain constraints and reduced output, so prices began to rise. And as increased costs became more entrenched, central banks began to view inflation as a longer-term issue.


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