Blending liquid real assets with an equity/bond core

[5 min read, full article in pdf]

• Bonds fail to provide diversification or protection in inflationary regime
• Liquid real assets can improve inflationary resilience
• For advisers using equity/bond funds, a blended approach can help

 
In theory, through 2021 we have argued that bonds would remain under pressure against the twin pressures of rising interest rates and rising inflation.  In practice, market dislocations of 1q22 evidenced this as bonds provide no place to hide in a time of market stress, and lost both their diversification and their protection characteristics.  Indeed, the losses sustained on the bond side of a traditional multi-asset equity/bond portfolio were more extreme than the losses sustained on the equity side.  The pressure on bonds will continue so long as we are in an inflationary regime.  And that may be for the medium-term (e.g. 5 or more years based on market implied inflation rates).  This is forcing a rethink for advisers reliant on equity/bond multi-asset funds to deliver a core investment strategy for their clients.  
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