While duration is always an important factor to consider in your clients' fixed income portfolios, it is naturally more likely to impact clients' investments when there is a change in interest rates.
But given the economic outlook for 2024, when we lack clarity over the degree to which rates and inflation will decline, duration is a “critical investment tool” in the current market, according to managers quoted in this latest CPD feature.
Indeed, with two Bank of England monetary policy committee members calling for a rise, and only one opting for a cut in the February 1 meeting, and markets watching nervously to see if the US Federal Reserve will cut rates in March, it is important for portfolio managers to keep their eyes on duration. After all, nobody wants to be at the wrong end of a duration call.
At a basic level, those looking to create a balanced portfolio sometimes use longer duration portfolios to provide some diversification away from their equity risk.
A lower duration portfolio will provide less exposure to interest rates. This can lower volatility, and would naturally protect capital from interest rate movements.
But as with every investment decision, there are multiple factors to consider. Click on the image above to read the CPD feature.
