Last March, we wrote a piece entitled “Equity Repricing Under a New Administration: A Tail Risk Scenario.” We posited that the proposed pro-growth tax and spending policies of the Trump administration, thrust onto an economy nearing full capacity, could lead to a general rise in the inflation rate and ultimately the real rate of interest.
With stocks hitting record highs, many investors want to mitigate the largest source of risk in their portfolios – equities. In recent decades, fixed income has served this purpose well. The asset class has generally delivered both positive returns and negative correlations with equities.
Ask an investor if most active bond funds outperform their passive counterparts and the response is likely to be "no."