CIO Interactive Portfolio Toolkit
Interactive portfolio construction tools helping CIOs discover the evolution of stock-bond correlations, real assets and recession probability estimates.
The alignment of stars that made long-dated U.S. Treasuries more of a problem than a solution for institutional portfolios last year is unlikely to be seen again anytime soon, leaving room for those bonds to reclaim their role as a core risk-off allocation for asset owners this year, analysts say.
The events of the past week — when SVB Financial Group announced hefty losses, igniting a run on its Silicon Valley Bank affiliate that quickly drove the bank into the ground — provided a stark reminder of their defensive charms. Even as fears of financial market fragility shaved 3.4% off the S&P 500 index of large U.S. companies between March 8 and March 13, safe-haven buying of long-dated Treasuries sent yields tumbling, providing holders with an offsetting gain of more than 4%.
Others contend that negative correlations, while attractive for hedging purposes, shouldn't be seen as a be all and end all in making bonds a core holding for diversifying and hedging portfolio exposures.
"As long as stocks and bonds are not perfectly, positively correlated ... bonds can provide diversification benefits to a stock-bond portfolio," noted Bruce Phelps, Managing Director and head of Institutional Advisory and Solutions at PGIM.
The IAS team conducts bespoke, quantitative client research that focuses on asset allocation and portfolio analysis.
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Interactive portfolio construction tools helping CIOs discover the evolution of stock-bond correlations, real assets and recession probability estimates.
Bruce Phelps, Head of IAS at PGIM, joins the CFA Institute to discuss why comparing private and public asset class reported performance can be misleading.
Recessions are a feature of the economic & market landscape. Yet are revealed with a lag, which is why investors often rely on recession probability estimates.