People love to speculate about when interest rates will rise, but no one has the faintest idea when they will change here or anywhere else in the world.
One certainty is that when rates do rise, bond prices will fall because the two are connected like the opposite ends of a see-saw. This worries some bond investors who feel the looming threat of an inevitable fall in the value of their investments. These investors should not worry.
Imagine you own an investment property that you let out to tenants. If you spotted a headline at a newsstand in a foreign airport predicting an imminent collapse in house prices, would you immediately call an estate agent and instruct the sale of the property?
No: you would investigate where their story related to, decide whether it was relevant to you and act accordingly. Our diverse, global investment style entitles us to the same considered approach in relation to bond investments. We own bonds all around the world and they do not all behave the in the same way at the same time.
What if you saw the same headline in your local paper? You still might not rush to sell. First, the property is a long-term asset that you will own for years and should expect to overcome short-term price shocks. And second, your tenants will continue to pay you an income whatever the value of the property.
There’s another parallel with bond investing here in that you should share the same long-term view with bonds as you might with a property investment; and that bonds will continue to pay an income as their prices change.
Our approach to investing in bonds is highly flexible. We invest across international borders and seek bonds with different maturities and from different issuers. The result is a portfolio of bonds that is responsive to changes to interest rates wherever and whenever they might occur.