Why Has My Low Risk Portfolio Fallen in Value?

Despite seeing news headlines of record highs in equity markets, many investors saw their portfolio fall in November in the aftermath of the U.S. presidential election

Dan Kemp 30 December, 2016 | 8:30AM
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Many investors were surprised to see the bottom-line of their portfolio fall through November in the aftermath of the U.S. presidential election, despite seeing news headlines of record highs in equity markets. This is especially true for “lower risk” portfolios that have a high allocation to bonds.

In many respects, we saw evidence of the short-termism that grips investors from time to time. A portfolio that is traditionally structured with 20% in equities and 80% in fixed income will naturally find it hard when bond prices fall, even if bonds/equities tend to move in opposite directions. For those that were more cautiously positioned - including Morningstar Managed Portfolios with a high cash allocation and an aversion to over-priced bonds - performance can slip when almost all boats fall on a receding tide.

These sudden shifts are inevitable from time to time, although one can never be sure what the catalyst nor sustenance will be. While we cannot draw strong inferences from this price volatility, it does provide a timely reminder that bond markets may not be sexy but they are indisputably important.

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Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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