True multi-asset approach is also beneficial in a world with positive bond yields

Interest rates are back and bonds are once again an attractive asset class after years of low or negative yields. With 3-4% interest rates on fixed deposits and 4% yields on high-quality euro area bonds, investors are parking a lot of capital in fixed-term deposits and short-dated bonds.

In doing so, they overlook the added value that true multi-asset approaches offer:

• diversification across all asset classes as a "free lunch",
• higher long-term return potential and
• better inflation protection.

Even if fixed-term deposits and short-term bonds appear attractive in the short term, they are fraught with uncertainties in the medium term. The current high interest rates on short-term bonds are likely to be a special situation, as the euro yield curve is more inverted than at any time since the early 1990s. Short-term investments thus have a clear reinvestment risk with likely lower yields in the medium term. In addition, the level of nominal yields, although attractive, is still not sufficient to maintain purchasing power or even real asset growth in view of current inflation.

In this "Spotlight" edition, we address the question why multi-asset strategies remain attractive for medium to long-term investors in a world of positive bond returns.

Read the full publication here