May 20, 2021
Since its inception, the Bloomberg Barclays US Aggregate Index has had a negative total return in only three out of 45 years. In the year following each of these selloffs, the index returned an average of 12%.
In 2021, with rates rising and the average coupon across the Bloomberg Barclays US Aggregate Index continuing to fall, returns have been negative so far, prompting investors to question how to position their fixed income assets within a balanced portfolio.
Despite all the criticism of 60/40 portfolios, the decline in fixed income prices this year has occurred for good reasons – asset classes are behaving as they should with risk allocations drastically higher and the anchor allocations modestly lower as the economy revives. We believe it is critical to acknowledge this and to plan for how to allocate assets moving forward to take advantage of price movements.
Bloomberg Barclays US Aggregate Index annual returns
Chart source: Morningstar Direct. Performance for 2021 is through April 30, 2021.
Past performance does not guarantee future results.
Investing involves risk, including the possible loss of principal.
What this means for investors
High-quality fixed income allocations have shown strong resiliency through the years and are a time-tested diversification tool for an overall portfolio. While rising rates are a risk for investors, they also present an opportunity to rebalance with lower bond prices. An active fixed income manager that can invest strategically in this US investment grade core and beyond can help further mitigate interest rate risk and generate income in a quickly changing market where agility is key.