Gilts a poor diversifier for cautious investors - Morningstar

Duration doubled in 20 years

Victoria McKeever
clock • 1 min read

Low yields in combination with duration and inflation concerns have heightened the risk for cautious investors whose portfolios are "stuffed" with UK government bonds, according to Morningstar's Mike Coop.

The group's head of multi-asset portfolio management pointed out that, while the average yield on gilts had fallen significantly,  duration on UK government bonds had all but doubled since 1998, as the right-hand graph below illustrates. "The sensitivity of the market to a rate rise has therefore dramatically increased," Coop added. "For a lot of portfolios, that is an issue because people who are in conservative or cautious portfolios - those portfolios are stuffed full of gilts." Source: Morningstar Investment Management In his view, this growing duration risk has not receive...

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