Fixed Income investments in developed market government bonds, both nominal and inflation-linked, are the core safety net allocation in a diversified multi-asset class portfolio. These are low risk instruments which offer protection against unexpected deflation or inflation, and are a source of liquidity for rebalancing. For US taxpayers, municipal bonds may be substituted due to the greater tax efficiency.
We usually invest in government bonds directly in the underlying securities or through low-cost passive funds and ETFs given the limited potential for outperformance from security selection. Where permissible, we prefer to invest in nominal bonds through futures (as we do in our flagship multi-asset class vehicle). Where our macroeconomic views differ substantially from the market, we actively seek to exploit the asset class mispricing through over/underweights in our tactical asset allocation.