The balance within an investment portfolio is usually spread between “growth” assets (which invest in markets) and “defensive” assets (like government and corporate bonds, commercial property and infrastructure)
Defensive assets, as the name suggests, are intended to be more cautious: they tend to be stable when markets are volatile and grow more slowly. They are also a reliable source on income into a portfolio (with income yields of over 4%).
Longer term, you can see that bonds are usually stable when markets fall. This chart shows the UK market (black line) and UK corporate bonds (brown line) over 20+ years, and it does show the significance of the short-term falls of 2022.
However, 2022 was different. The chart at the top of the next column shows the UK market (black line) and UK corporate bonds (brown line) over 5 years.
The fall in bond values was greater than the UK market and reached its lowest point after the “disastrous mini budget” of Liz Truss in September 2022.
However, like any investment, what goes down will come back up, and values have begun to recover.
This might not be immediate, or as quick as we might like, as full recovery will not happen until we have seen inflation starting to fall and the Bank of England slowing the pace of increasing interest rates.
Both factors are expected to happen in the coming months, so we feel 2023 will be much more positive for these holdings.
This article is for information purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.