Going global with bonds: The benefits of a more global fixed income allocation
How a hedged global fixed income allocation can help reduce a portfolio's volatility without necessarily decreasing its total return.
- An allocation to global bond markets gives investors exposure to a greater number of securities, markets and economic and inflation environments than they would have with a portfolio composed purely of local market fixed income. In theory, this diversification can help reduce a portfolio’s volatility without necessarily decreasing its total return.
- We tested the empirical reality across five markets: the United States, Canada, the United Kingdom, the euro area and Australia. In each market, reality confirms theory – but with a critical qualifier: The key to realising the diversification potential of global bonds is to hedge the currency exposure back to the investor’s local currency.
- Although the benefits of global bond diversification are clear, the optimal strategic allocation depends on investor-specific factors such as the desire to mitigate risk, the cost of implementation and liability management objectives. We explore how these factors influence the size of an investment in hedged global bonds.
Going global with bonds: The benefits of a more global fixed income allocation
How a hedged global fixed income allocation can help reduce a portfolio's volatility without necessarily decreasing its total return.
