UK inflation at a 10-year high and a rise in interest rates may not be the kind of conditions in which bonds spring to mind. But no one should have 100 per cent of their assets in equities and, when allocating the non-equity part of your portfolio, there are reasons why you should consider bond funds before other non-equity investments.
Analysts at research company FundCalibre point out that it is because bonds appear boring that they can be rewarding. Their role in a portfolio is not to outpace equities or other potentially high-returning investments. Rather, bonds can diversify equity investments in your portfolio because when equity markets fall, some types of bonds can fall less.
Harry Richards, co-manager of Jupiter Strategic Bond Fund (GB00BN8T5596), argues that the “less spicy parts of the bond market [serve a useful purpose]. They become very valuable particularly in later life when drawdowns or equity market volatility may not be appropriate, and a need for income in retirement is front of mind.”