ANALYSIS-Investments get real as inflation fears dim appeal of bonds

By Reuters6 days ago

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By Saikat Chatterjee and Thyagaraju Adinarayan

LONDON, April 8 (Reuters) - Electric vehicle infrastructure, top-end offices and industrial metals - with a resurgence in inflation seemingly on the horizon, investors are slashing their exposure to bonds in favour of “real“ assets.

While such investments tend to generate income and often appreciate in value, they are particularly prized as a shield against inflation, which many economists expect will make a return as economies recover from the pandemic.

That means major changes for multi-asset portfolios run along traditional 60-40 lines. Sovereign debt such as U.S. Treasuries and German Bunds has typically accounted for part of a rough 40% bond allocation - providing an income and acting as an anchor against the lucrative but volatile 60% equity component.

But with rock-bottom yields, G7 sovereign debt is offering neither substantial income in normal times nor much safety when things turn rough, and inflation may prove an even bigger headwind.

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