When inflation is low and inflation expectations are steady, the macro landscape is fairly predictable, says Amy Xie Patrick, Pendal’s Head of Income Strategies.

"It's predictable how growth is going to pan out and how inflation is going to pan out – and therefore how policy makers are going to react.

"But when inflation is rising, policy makers can sometimes be caught on the back foot – which is what the market currently thinks about most central banks.

"That leads to higher levels of economic volatility, which translates to higher levels of market volatility.

"What does that mean for bonds and investing in fixed income?

"If you’re invested with a manager who largely has a buy-and-hold or a passive style, the Sharpe ratios of those returns – ie your risk-adjusted returns – will necessarily be lower in a more volatile environment."

The Sharpe ratio measures how much excess return an investor gets for enduring extra volatility while holding a riskier asset.

"But a more volatile environment opens up opportunities for active investment managers to add value."

Amy Xie Patrick explains more in this fast podcast.

Find out more about Pendal’s fixed interest strategies at https://pend.al/fixedinterest.

Pendal is an independent, global asset manager. Find out more at www.pendalgroup.com.

When inflation is low and inflation expectations are steady, the macro landscape is fairly predictable, says Amy Xie Patrick, Pendal&rsquo;s Head of Income Strategies.
"It's predictable how growth is going to pan out and how inflation is going to pan out &ndash; and therefore how policy makers are going to react.
"But when inflation is rising, policy makers can sometimes be caught on the back foot &ndash; which is what the market currently thinks about most central banks.
"That leads to higher levels of economic volatility, which translates to higher levels of market volatility.
"What does that mean for bonds and investing in fixed income?
"If you&rsquo;re invested with a manager who largely has a buy-and-hold or a passive style, the Sharpe ratios of those returns &ndash; ie your risk-adjusted returns &ndash; will necessarily be lower in a more volatile environment."
The Sharpe ratio measures how much excess return an investor gets for enduring extra volatility while holding a riskier asset.
"But a more volatile environment opens up opportunities for active investment managers to add value."
Amy Xie Patrick explains more in this fast podcast.
<a href="https://www.pendalgroup.com/products/asset-class/australian-fixed-interest-funds">Find out more about Pendal&rsquo;s fixed interest strategies at https://pend.al/fixedinterest.</a>
Pendal is an independent, global asset manager. <a href="https://www.pendalgroup.com/">Find out more at www.pendalgroup.com.</a>

Perpetual Group is an international asset manager including boutiques such as Perpetual, Pendal, Barrow Hanley, Regnan and Trillium. Each week our portfolio managers share the most interesting things they've heard from CEOs, industry leaders and analysts.

Perpetual Group is an international asset manager including boutiques such as Perpetual, Pendal, Barrow Hanley, Regnan and Trillium. Each week our portfolio managers share the most interesting things they've heard from CEOs, industry leaders and analysts.

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