Rising bond yields and heightened volatility in fixed income markets are increasing the importance of alternative sources of portfolio diversification, says Franklin Templeton.
The firm’s latest Asset Allocation report highlights how higher energy prices and resilient economic growth have pushed up bond yields, putting pressure on equity valuations and challenging traditional approaches to diversification.
With stocks and bonds moving in the same direction, Franklin Templeton is looking to additional diversifiers, including commodities and private assets, to provide different sources of return.
Lisa Wang, head of EMEA investment strategy at Franklin Templeton Investment Solutions, said: “The heart of the problem right now is that stocks and bonds are moving together, and this defeats the whole purpose of diversification. So we’re turning to alternatives – commodities, energy, real estate, private credit – things that actually march to their own beat.”
Wang said these diversifiers are not beholden to the same market cycles and can generate returns independent of what’s happening in stocks and bonds.
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