Higher bond yields mean that clients with a focus on income “need to lean less heavily” on equities, according to the guests on the latest FT Adviser podcast.
Mark Jackson, an investment specialist within the multi-asset team at JP Morgan Asset Management, said: “Something that has changed significantly for investors is that bonds are now capable of providing diversification where yields are now, as well as providing the yield income investors want.”
Guy Foster, chief strategist at RBC Brewin Dolphin, said the higher bond yields available now meant a wealth manager could “target the yield a client needs, and of course that is a positive, though the potential for capital destruction is also higher.”
Simon Adler, who runs a global equity income strategy at Schroders, said many market participants tended to adjust their equity allocations based on movements in bond yields, owning more of certain types of stock when yields rise and others when yields fall.
Adler believes this approach increases the potential for “investment mistakes” and instead focuses on valuing equities relative to a “normalised” bond yield.
You can listen to the full podcast episode by clicking on the link above.