Portfolio Protection - Rethinking the Role of Government Bonds

The traditional 60/40 investment portfolio of equities and bonds has worked well for investors for a long time. For much of the last 15 years, the environment that has afforded this success has been driven by central bank actions such as ultra-low interest rates and quantitative easing.

But in a world where pandemic concerns have upended the economic backdrop and bond yields are increasingly negative, it makes sense that investors should reconsider traditional thinking and question whether they should expand the range of assets that can act as “safe havens” in their portfolios to include gold, inflation-linked bonds and currencies.

In this paper, we look at how government bonds have performed as a diversifying asset and consider how investors might utilise alternative investments to help protect portfolios during periods of upheaval.