Having a portfolio diversified across both bonds and equities might not seem like a very attractive prospect. In the past year, these two asset classes have lost value, in contrast to past periods when they moved in different directions to each other. This has meant that portfolios diversified across equities and bonds have made poor returns.
Asset Risk Consultants (ARC) reports that its ARC Sterling Steady Growth Index's average return was down by 1.6 per cent over the third quarter of 2022, and 12.5 per cent over the nine months to 30 September, in sterling terms. ARC collects the performance of more than 350,000 investment portfolios from over 140 investment managers, and a steady growth portfolio typically has around two-thirds exposure to equities with the remainder in other asset classes such as bonds.
However, ARC chairman Graham Harrison believes bond markets are returning to normal after a volatile year and the surge in prices seen during the era of quantitative easing. “This normalisation of bond markets is healthy for investors as the notion of diversifying the risk of a portfolio with a balance of assets is back.”