Bonds more attractive now than ever before, says Capital Group chair of fixed income

FIXED income assets suffered a bad rep this year, as aggressive interest rate hikes by the Federal Reserve caused losses across the board, and robbed the asset class of its ability to provide diversification benefits to a portfolio. But this is expected to reverse in quick order by next year, says Mike Gitlin, Capital Group’s chair of fixed income management committee.

Even with the overhang of inflation, a possible recession and the uncertainty of when the Fed might pause its rate hikes, Gitlin expects 2023 will be a year of reinvestment in fixed income. To date, Investment Company Institute data for US mutual funds reflects a record outflow of nearly US$450 billion from bond funds. Year to date, both the Bloomberg Global Aggregate Total Return index and the S&P 500 are down by around 17 per cent.

“Fixed income is now so much more attractive than it has been at any point in a long time. You could put together a blended investment-grade and high-yield portfolio for a yield of 7.5 per cent, with the high-yield in short-duration assets.