(Bloomberg) — AMP Ltd., one of Australia’s top asset managers, has ditched bonds from some of its retirement funds with sovereign debt no longer offering the diversification investors have relied on for decades as a ballast against stock volatility.
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The fund manager, which oversaw A$162 billion ($112 billion) as at February, no longer holds the securities in its retirement portfolios for younger investors and has cut allocations across other funds over the past six to 12 months, according to Chief Investment Officer Anna Shelley. Instead, it has shifted toward corporate credit while seeking greater exposure to commodities and agriculture to better diversify portfolios.
AMP’s stance reflects a growing shift among institutional investors that are questioning the role of bonds in portfolios, as elevated inflation erodes their value over time and the higher correlation to stocks reduces their ability to cushion equity losses during volatile market downturns.
“The main thing that we’ve done in recent times is to really reduce our weightings to government bonds,” Shelley said in an interview on Thursday. The move has been driven by views inflation will remain elevated, underpinning concerns “that we’re in a long-term, structurally difficult market for bonds — and we’re not convinced that they will provide the diversification benefits,” she said.
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Cutting government bond exposure has also helped finance overweight positions in global equities, Shelley added, contributing to an 11.3% return for AMP’s MySuper 1970s portfolio, one of its largest retirement funds, for the year through June 30.
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AMP is not alone. The Future Fund, Australia’s sovereign wealth fund, said in 2024 it would look to hedge funds rather than sovereign debt to offset equity risk, while Colonial First State has also broadened its fixed-income allocations beyond government securities.
“Traditional defensive assets aren’t actually acting defensively anymore and that’s connected with the challenges around government budget deficits,” Jonathan Armitage, chief investment officer for Colonial First State, said.
