Ian Spreadbury and Sanjiv Vaid, co-managers of the Fidelity Moneybuilder Income Fund agree that the prospects for returns from here look weak, but argue that diversification is a more important attribute than timing in such an environment.
“In a low nominal growth world, having bonds as a diversifier is important,” said Spreadbury, “I am not going to overplay the attractiveness of bonds but there is still a case to be made for having them in a portfolio.
Nick Gartside, international chief investment officer for fixed income at J.P. Morgan Asset Management, agrees that diversification is important, pointing out that the fixed income market is very different to what it was 30 years ago at the start of the current bull market.
Not only are there many more options, but currency also plays a far more important role, he said.
As a result, it is increasingly difficult to get the timing right, he said.
While they may differ slightly on the best way to navigate the world ahead, all four managers agree that returns are likely to be lower and volatility higher from here. Further complicating matters is the valuation challenge posed by ongoing technological disruption and expectations of mean reversion, a topic Portfolio Adviser has already attempted to address.
There is no doubt that the current environment still offers opportunity for investors, but it is unlikely to be easily found and, will most probably require more risk than was previously accepted. And, in such an environment, it is worth testing and challenging assumptions, even the ones that rely on what Einstein referred to as the eighth wonder of the world.
