Investors Rethink Role of Bonds, Tech and ESG After Chaotic Year

This has been a year like no other.

Hammered by an unprecedented health crisis, global stocks tumbled into a bear market at record speed, and then rallied to new highs thanks to a flood of central bank money. Bond yields tanked to uncharted lows and the world’s reserve currency surged to all-time highs, only to then retreat to its weakest level in more than two years.

As a tumultuous 2020 draws to a close, global asset allocators from BlackRock Inc. to JPMorgan Asset Management have outlined their takeaways for investors. Here are some of their reflections:

Rethink Bonds’ Role in Portfolios

The massive stimulus doled out by global policy makers when markets seized up in March led to one instance of a breakdown in what has long been a negative correlation between equities and bonds. The 10-year U.S. Treasury yield rose from 0.3% to 1% within a week, and simultaneously equity markets continued to fall.

Now, as investors face lower-for-longer rates even as growth picks up, doubts are emerging whether developed-market government bonds can continue to provide both protection and diversification as well as satiate investors seeking income gains. There’s also a debate over the traditional investing policy of putting 60% of funds in stocks and 40% in bonds, even though the strategy proved to be resilient during the year.

“We expect more active fiscal stimulus than any other modern period in history in the next economic cycle, as monetary and fiscal policy align,” said Peter Malone, portfolio manager at JPMorgan Asset’s multi-asset solutions team in London. “Future returns from a simple, static stock-bond portfolio will likely be constrained.”

Some Wall Street giants recommend investors take a pro-risk stance to adapt to the changing role of bonds. Among them, BlackRock Investment Institute advised investors to turn to equities and high-yield bonds, according to a note published in early December.