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With equity-market activity reflecting increased uncertainty, the argument for adding bonds to dampen portfolio volatility is convincing. At a time when risk on the rise, the historical relative risk-adjusted advantages bonds have demonstrated over the long-term strengthen the case.
Global multi-sector bonds outperformed equities on a risk-adjusted basis since 2001, delivering nearly twice the Sharpe ratio while experiencing far smaller drawdowns over the same period over the past 24 years.
Global Credit Versus Equities, 2001-2025
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Past performance is not a guarantee of future results. Source: PGIM Fixed Income, Bloomberg, as of 28/2/25. Data since 28/02/01. Global Bonds: Bloomberg Multiverse - Credit Total Return Index Hedged USD. Global Equities: MSCI World Hedged USD. Cash: S&P US Treasury Bill 0-3M. Sharpe ratio calculated by excess returns over cash over annualised volatility (standard deviation). It is not possible to invest directly in indices.
History also shows that seeking comfort in cash can be costly, with global bonds delivering about 300 basis points of excess return versus cash each year on average during the same period. Cash may appear safe in the short-term, but is a depleting asset in real terms, eroding over time with inflation and reinvestment risk.
Learn how a multi-sector credit allocation can provide more than defense via the active flexibility to uncover alpha potential by seeking dislocations and relative value opportunities across key bond sectors.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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