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
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.
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