Stockmarket sell-offs might be a natural part of investing, but portfolios have at least been able to cushion the blow with safe-haven assets. It’s a role government bonds have performed admirably well in the biggest sell-offs of recent memory, from the short-lived market crash of early 2020 to the volatile final quarter of 2018.
But recent developments look worrying for traditional balanced portfolios. When most equity markets fell last month, developed market government bonds also struggled, with yields (that move inversely to prices) on the rise. With the prospect of stubborn inflation and even interest rate rises posing a major threat for fixed income, investors are once again asking if any reliable safe havens remain. Some other mainstays have also faltered: gold has struggled both in September and more generally this year.
Other than using cash, diversification is often a case of holding many different assets in the hope that something works when needed, and that may well be a good strategy for now. But an assessment of returns from September may help to show which funds are showing resilience.