US fixed income gains space again in investor portfolios
After around 15 years of little incentive, American bonds are recovering income and diversifying their role, according to InfoMoney.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM INFOMONEY · 2 MIN
Fixed income in the United States has once again gained space in portfolios, according to a report from InfoMoney. After a long period in which securities did little to encourage increased exposure, investor attention is turning to what these securities can deliver now.
For around 15 years, according to the same report, there was little incentive to expand the allocation to American fixed income. Two factors explain this situation: low interest rates and modest bond returns. In this range, stocks were seen as more attractive for long-term appreciation.
The turning point is in the comparison between assets. According to InfoMoney, the yield on high-quality bonds returned to levels close to the earnings yield on stocks, an indicator that relates companies' profits to their price. When the two numbers get closer, the security stops being just a defensive alternative and starts competing more directly with the stock exchange for the portfolio.
The manager PIMCO, cited by InfoMoney, assesses that the bonds recover two functions: generating income and diversifying portfolios in times of economic deterioration. The reading is that fixed income is no longer seen just as a reserve and is once again evaluated as a central component of portfolio construction.
The debate, therefore, goes beyond the choice between one asset and another. At stake is the way in which the investor distributes assets between interest and the stock market after years in which the balance clearly tipped towards shares.
What changes for the investor
In practice, the change in comparison can lead the investor to review the proportion between fixed income and variable income, without this implying an indication of buying or selling any asset. Bonds with higher yields tend to offer predictable income and, according to PIMCO's reading, a possible counterpoint to stocks in periods of economic worsening. The stock market, in turn, continues to be associated with long-term appreciation, which the report pointed out as the reason for its attractiveness in the previous period. Before making any change, it is up to the reader to evaluate the deadline, risk tolerance and financial objectives.
Automatically translated from Portuguese.
