Ordinarily, low bond yields and concerns over rising interest rates would encourage investors to look at unconstrained bond funds to help diversify away from those risks.
But, as T Rowe Price’s Ken Orchard explains, the increased correlation among unconstrained bind funds themselves as they all look to the same allocations means investors have to ensure they are fully aware of what they are buying – otherwise, they run the risk of not diversifying away from the equity risks as they intend.
His own suggestion is to combine a core allocation of global government bonds with shorter duration credit, balanced with more defensive holdings that will perform better when the next risk aversion scenario plays out.
In conversation with Portfolio Adviser, he explains when that might be.
