Remove the weeds

Just as weeds reduce the harvest, investment myths can mislead investors from achieving desired investment outcomes. We bust these myths and uncover the facts on some common misconceptions.

Misconceptions of bonds can prevent investors from fully enjoying their diversification benefits.

Myth 1

Bonds offer lower risk and therefore lower returns


Bonds can offer more attractive returns than stocks

Historically global bonds have provided better risk adjusted returns than equities. Over the last 10 years, the sharpe ratio (which measures risk adjusted returns) of global bonds was higher than that of global and Asian equities1.

Myth 2

Bonds go up when stocks go down


Bonds can benefit from the same factors that drive stocks

Bonds tend to perform well in low growth environments where interest rates are low or heading lower. These are usually weak periods for stocks.

However, high yield and corporate bonds can also perform well when the economy is booming, and stocks are rallying. This is because stronger profits can lower the risks of such bonds not making their interest or principal payments.

Myth 3

You don’t need an active strategy for investing in bonds


Not all bonds are created equal

Passive investing by following bond benchmarks may not always be ideal as they tend to be dominated by countries or companies that have issued the most amount of bonds - not always the best reason to own a bond!

Bonds also come with different credit, default and ESG risks, as well as different maturities and currency exposures. As such, investors can benefit from an active selection of bonds by a financial professional.

The general concepts shared are for educational purposes only and not for the use in the marketing or sale of any Eastspring investment products.

Viewers are advised to be cautious if they intend to invest in any products that are used in the illustrations as the illustrations do not cover the full spectrum of considerations required in making an investment decision.

This information is not an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such an offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such an offer or solicitation. It should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any investments if mentioned herein.

The information contained herein does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors may wish to seek advice from a financial adviser before any making investment decision. In the event that an investor chooses not to seek advice from a financial adviser, he should consider carefully whether the investment in question is suitable for him.

Eastspring Investments (excluding JV companies) companies are ultimately wholly-owned/indirect subsidiaries/associate of Prudential plc of the United Kingdom. Eastspring Investments companies (including JV’s) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).