Bonds have moved from being a good strategic asset to a tactical asset, a senior multi-asset investment manager at Pictet Asset Management has said.
Shaniel Ramjee told FTAdviser that generating a real return on bonds is going to be difficult.
“If you’re a long-term saver, you’re going to have to look elsewhere,” he said. “Bonds...have produced a good real return for investors for over 30 years, [but] this is now no longer the case
“To us, this is just not a sound investment anymore.”
However, he added bonds still do have diversification benefits during certain periods.
“[Bonds] will do slightly better when economic growth is poor, and when inflation is low.”
Ramjee said there were pockets of bond investment he would encourage, including some that can withstand periods of higher inflation.
“We do see bonds around the world that do provide us with some real return, for instance in the emerging markets. But they do come with more volatility and less diversification benefits, so there’s a trade-off there.
“Norwegian bonds do very well [in inflationary periods] because the economy is very linked to energy prices, and the currency will appreciate when energy prices go up.”
He added the same was true for Australia, where the demand for minerals will push up the value of the Australian dollar.
If a client wants to diversify their portfolios but not in bonds, commodities are a strong performer, Ramjee said.
“In a world where we know that it becomes more complicated to invest in energy companies, for instance, because of the nature of their business, the underlying commodities [still] provide a hedge for a diversified portfolio.
“We started putting economic commodities into the portfolio at the back end of last year - that’s a diversified source of energy, commodities, agricultural commodities and industrial metals.
“The reason being that as we re-open the economy, we know there’s going to be a lot more demand for fuel and materials, and of course the environmental transition is going to require these commodities in us making that transition so it’s not that we don’t need them anymore.”