Stronger synchronisation of equities and government bonds is also likely to shape the coming years

The time of the static asset allocation is over. Prof. Dr. Bernd Meyer shows that a stronger synchronisation of equities and government bonds is likely to shape the coming years. The resulting decrease in diversification requires multi-asset investors to be more flexible and to look for alternative hedges.

For a long period, government bonds with a long duration offered the almost per-fect hedge against price losses in risk assets. They generated positive returns and, as safe havens, regularly compensated for part of the losses during stock market cor-rections. This correlation property between government bonds and equities was crucial to the success of static multi-asset approaches. Today, investors struggle not only with the low yield but often with negative expected returns from government bonds. Also, the relationship between government bond and equity performance, which was predominantly negative for many years, is currently rather positive. The current pattern is likely to dominate in the coming years as well. This synchronisa-tion reduces diversification in portfolios, causes difficulties for risk-conscious inves-tors and requires multi-asset investors to take a more flexible, opportunistic ap-proach and seek alternative hedges rather than a static mix of equities and bonds.

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Author

Prof. Dr. Bernd Meyer

Prof. Dr. Bernd Meyer has been Chief Investment Strategist at Berenberg Wealth and Asset Management since October 2017, where he is responsible for discretionary multi-asset strategies and wealth management mandates. Prof. Dr. Meyer was initially Head of European Equity Strategy at Deutsche Bank in Frankfurt and London and, from 2010, Head of Global Cross Asset Strategy Research at Commerzbank. In this role Prof. Dr. Meyer has received several awards. In the renowned Extel Survey from 2013 to 2017, he and his team ranked among the top three multi-asset research teams worldwide. Prof. Dr. Meyer is DVFA Investment Analyst, Chartered Financial Analyst (CFA) and guest lecturer for "Empirical Research in Finance" at the University of Trier. He has published numerous articles and two books and received three scientific awards.

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