Creepy correlations: What’s keeping eight readers awake this Halloween

Jonathan Webster-Smith, CIO quoted in Citywire, 29 October 2021 

I believe investors should be concerned about the implication of rising interest rates on fixed income and how this will impact portfolios, in particular lower risk portfolios, where fees and portfolio returns need to be carefully considered.

On the one hand, fixed income securities provide diversification, reduce volatility, and ensure a regular income within a portfolio. On the other hand, the bond yields tend to rise in response to interest rate rises and, consequently, their prices fall.

In times of rising interest rates, shorter duration bonds are an option worth considering as they have a lower sensitivity to changes in interest rates, although they require active management.

To conclude, in a world of rising interest rates, selecting the right asset to diversify your equity risks will become even more critical as interest rates start to increase.

On a personal note, I am apprehensive of what the outcome of COP26 could be as it may show a weakening in commitment from Paris.

At COP21 in 2015, the Paris agreement was adopted by world leaders with the common objective of limiting global warming to 1.5C.

To reach this goal, countries committed to bringing forward national plans that set out how they will reduce greenhouse gas emissions, how they will build resilience against rising temperatures and agreed on a five-year commitment checkpoint.

COP26 will be the first opportunity to assess progress against these plans. Ideally, we want to see a strengthening in commitment from countries as this will lead to more ambitious goals as we move towards a net-zero emissions world.

However, Chinese president Xi Jinping’s expected absence from the talks could indicate that the world’s biggest CO2 producer has no more concessions to offer.

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