Role Of Fixed Income Challenged


    The traditional role of fixed income may no longer be relevant, says Ben Steiner, senior portfolio manager, absolute returns, Fischer Francis Trees & Watts. Speaking at the BNP Paribas Investment Partners’ ‘Thinking about shifting gear? How Absolute Return Strategies can benefit fixed income portfolios’ session, he said traditionally investors believe fixed income offers low risk, diversification, and capital preservation. However, a closer examination shows that in terms of diversification, when equity does well, so does fixed income. And while it can have better returns when equities are down, the return then is not as good as when equities are up. What you really want to do is hedge your equity risk and fixed income does not do that. Nor does fixed income really preserve capital, he said, as the better returns are only achieved by using riskier assets. When inflation is taken into account, there is no return so fixed income “does not provide risk-free return, it offers return-free risk.”