Bond and equity yields will be low for the coming year, caused by demographic changes and a decrease in the amount people are saving, the Barclays Wealth Equity Gilt Study 2010 reports.
According to Tim Bond, head of asset allocation at Barclays Capital in London and co-author of the study, bond yields for 2010 will be as low as 1.5% and equities will not do much better, with yields of 7%. This is caused by a shift in demographics, particularly in the developed world but also in a lot of developing countries. This means the abundance of savings will decrease, in turn increasing risk premiums, especially for bonds, and reducing yields.
“We are suggesting investors should think about structurally underweighting government bonds and reducing benchmark weightings in the asset class as a long-run strategy,” says Bond.
Despite his previous caution about investing in structured products, he now says they could be a good addition to a portfolio. “They can be helpful to express specific views. Simple products where you get leveraged returns can be good in your portfolio. But there are other products that are structured to reflect views that might change over time. They might look like a good idea but their illiquidity goes against them for an investor if they change their mind.”