AMP Rethinks Pension Portfolios as Bonds Lose Hedging Role
Synopsis
The asset manager argues that government bonds no longer provide the defensive characteristics investors have relied on for decades, prompting portfolio changes.
After Australian wealth manager AMP pulled sovereign bonds from retirement accounts for younger workers, due to the absence of protection that investors have traditionally believed to have in the equity markets, the bonds have emerged as a key investment realignment.
These changes have been made in the last 6-12 months throughout AMP's investment funds. The firm with assets of around A$162 billion (US$112 billion) has shifted some of those resources toward corporate credit, commodities and agriculture. The review is driven by market dynamics, not a market call, said Chief Investment Officer Anna Shelley.
Long-Held Investment Model Faces Pressure
For years, government bonds have been considered the safe side of well-balanced portfolios, especially the popular 60/40 rule, which has been a mainstay of balanced investing for decades that mixes stocks with bonds. Over downturns, bond prices generally increased, as investors moved to relatively safe assets, thus mitigating losses in stocks.
The relationship has weakened as stocks and government bonds have become more in sync, Shelley said. That, in turn, has lowered the diversification advantages that sovereign debt historically offered, especially the long-term retirement portfolio, according to AMP.
The portfolio shifts are most severe with retirement products marketed to younger investors but the company is slowly reducing exposure to sovereign bonds in other investment strategies too.
Global Investors Reassess Fixed-Income Allocations
AMP's move coincides with a period of increased inflation and interest rates over the past few years, which has prompted institutional investors to rethink their portfolio construction. Those conditions have changed the dynamics of the equity/bond relationship, and many pension managers are re-evaluating their long-standing asset allocation models.
Pension funds in Australia, the United States, Canada, the United Kingdom and the Netherlands have diversified their portfolio holdings in recent years, investing more in equities, private markets and less in traditional government bonds in some cases, the Bank for International Settlements (BIS) said in its latest study of pension markets.
AMP has not divested itself of fixed income investments, but has reallocated some of its sovereign bond portfolio into corporate credit, as well as increased exposure to commodities and agriculture as part of its inflation-management policy, which provides better yields than government bonds.
A multi-asset approach is the crux of the strategy as the global pension sector keeps adapting to new market dynamics, a belief held by the strategy manager, AMP.
Source: Bloomberg
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Pooja Malik is a business journalist with over six years of experience covering startups, entrepreneurship, and emerging trends. She has previously worked with leading media platforms such as YourStory Media and BW BusinessWorld, where she reported on business, policy, and market developments. Currently, she serves as Editor at The Inspirepreneur Magazine, where she writes and edits stories across business, lifestyle, and travel, with a focus on clarity, accuracy, and reader relevance.
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