What role can different bond types play in a portfolio?

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What clients need to know about bonds

"It feels too late to invest in traditional index-linked bonds, which are already pricing in a high inflationary backdrop.

"With such economic uncertainty, having a barbell approach within bond portfolios makes sense.

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"This would be between areas such as short-duration high yield, which would be less impacted by ongoing high levels of inflation, and longer-dated higher-quality government bonds to provide insurance against a backdrop of recession, where inflation would be expected to fall back and defaults increase."

Diversification is key

Interactive Investor's head of funds research Dzmitry Lipski comments: “Bonds should continue to offer investors the benefits of diversification away from equities, along with stable income and relatively low volatility, especially in periods of economic uncertainty."

But there are actions an adviser can take to protect the client's portfolios from things such as rising inflation, political or sector risk.

According to Moneybox's Brian Byrnes, head of personal finance, "the best course of action an investor can take in a rising inflation environment is to have a diversified portfolio".

He explains: "While 2022 has been a difficult year for portfolios, some segments have done relatively well, such as energy.

"However, it is very difficult to consistently tell in advance which sectors are going to do well in any particular investing environment."

Henry adds: "The whole point of setting out your investment process in advance is to have some rules in place to rebalance your portfolio when it can feel uncomfortable to do so – history tells us that this is often the right approach to take."