19/08/2011
By Adam Cadle
Investors are moving away from equities to more ‘safe’ assets such as bonds, despite their low yields, as a response to stock market volatility, financial experts have warned.
According to Blue Diamond Asset Management, the political and market turmoil has caused many investors to aggressively reduce or exit equity markets in favour of “safe assets”, such as US treasuries, Swiss and German government bonds.
The company’s chief investment officer Alex Orus said: “It is understandable that investors want to de-risk their portfolios as long as political leaders, in particular in Europe, are struggling to take any decisions that would make sense in the long-run.
“However, we believe that a ‘de-risking’ of a portfolio does not always mean less equity and more bonds. The current yield curves in the US, Switzerland and Germany indicates extremely low or even negative real yields across all maturities. A negative real yield for any investors means a certain loss.”
Octopus Investments chief information officer Lothar Mentel also underlined the growing investor urge to buy bonds.
Mentel commented: “Yields at these levels suggest investors are willing to keep buying bonds, and in doing so accept the erosion of their purchasing power in order not to be overly exposed to the volatile swings of risk assets.”
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