00:00Let me ask you about where you see value in fixed income. We spent a lot of time on this
00:04program in recent weeks and days talking about fears around bond markets and higher yields on bond markets. But you
00:11see those higher yields as providing an opportunity. Where do you see those opportunities?
00:15Yeah, it's an interesting dynamic in the bond market. If you go back to 2020 when yields were very low,
00:21but people had experienced sort of slow, steady, positive returns in their recent history, they were happy to buy bonds.
00:28Obviously, they've suffered much worse returns in recent years. But rather than focus on historical returns, let's focus on prices
00:35today. And if you look at real yields, which strip out the effects of inflation and all the goings on
00:40that we see in the Gulf, etc., real yields are positive.
00:432% positive in 10-year-old yields in the US and the UK, that's not a bad starting point
00:49for what is still, in my belief, a low-risk asset class versus all the other things you can buy.
00:54So if bond investors still have some sort of PTSD from the levels of inflation we saw in 2022, I
01:01mean, is that valid? Because maybe they are making the assumption that the central banks were a little asleep at
01:08the wheel there, thought it was too transitory, didn't turn out to be quite so simple.
01:12And therefore, they're fearful that central bankers won't do what's necessary again.
01:18I think that is a very accurate take on it. I think the central banks were perhaps, particularly in the
01:22developed market, were perhaps a little bit slow to act in contrast to, say, EM.
01:27But now, what, we've got four rate hikes priced into the UK. People expect rate hikes across the board. So
01:34I don't think they'll make that same mistake twice.
01:36But the key point of fixed income is, people see it as a geek's market because it's a bit more
01:41mathematical. But your starting yield is pretty instructive for your future expected returns.
01:46And when people were buying bonds sub 1% or negative yields, that was sowing the seeds of that bear
01:51market in 2022. Fast forward to today, bond yields 5%, 6%. It's a much healthier outlook.
01:56Why do I have bonds in my portfolio?
02:00Because they provide income. I mean, not because they're a counterweight to stocks.
02:05I think to a certain extent, particularly given how, I mean, I'm not an equities guy, but how buoyant stock
02:12markets are, how concentrated stock markets are.
02:16If you want, I was chatting at something yesterday, and if you think about the concentration of AI risk, both
02:22in EM equities and in developed market equities, you're also beginning to see that concentration risk develop in corporate bonds.
02:29Yes.
02:29So perhaps how do you avoid, how do you diversify out of AI by some government bonds in your portfolio?
02:34Yeah.
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