The 1994 Litmus Test

prepared by Capital International Asset Management

1994 is remembered as one of the most challenging bond markets on record. Interest rates rose 300 bps in the first six months of the year, and bond investors took a big hit.

Would a diversified yield source have helped investors in that extreme market environment?

DEX Universe Bond Index: -4.31%
Blended bond portfolio: -2.21%

(Blend* = 70% DEX Universe; 20% global bonds; 5% high-yield bonds; 5% emerging markets debt)

Of course, today's bond market is different, especially since about half of emerging markets bonds are now investment grade. But it's clear that a diversified portfolio would have held up better in 1994 than an all-Canadian bond portfolio.

Our Canadian Core Plus portfolio offers a diversified yield source -- across sectors, countries and currencies -- with high-quality Canadian bonds at the core. This flexibility may serve investors well in a rising rate environment, and it's one of the few ways to add value in fixed income today.

Jim MulallyLast week, we hosted a webinar featuring Jim Mulally, a 35-year veteran of fixed-income markets. For Jim's commentary on interest rates, inflation and European sovereign debt, as well as how he's structuring our Canadian Core Plus portfolio for the current environment, see the links below.


  • Audio replay: 888/203-1112; code 7354460 (Available through August 1)


*Global bonds = Barclays Capital Global Aggregate Bond Index; High yield = Barclays Capital U.S. Corporate High Yield Index; Emerging markets debt = J.P. Morgan Emerging Markets Bond Index. Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

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