AI, productivity and higher bond yields are challenging old portfolio assumptions. Matt Sherwood explains in this new video podcast.

AI’s promise to lift productivity is reshaping market expectations, but with inflation pressures proving persistent and bond yields remaining elevated, Sherwood – head of investment strategy within Perpetual’s Multi-Asset team – argues investors may need to rethink some long-held portfolio assumptions.

He discusses how AI could help Australia’s productivity challenge but not solve it, why its investment impact is likely to be uneven, and what higher-for-longer bond yields mean for portfolio construction.

Sherwood also explains why bonds may no longer provide the same reliable defence against equity market falls — and why investors may need to place greater emphasis on quality, liquidity and downside protection in a more volatile environment.

Here’s an excerpt from the video podcast:

“Bonds have one job in a portfolio – to go up when equities go down. 

“That strategy worked well for two decades, but in 2022 a great relationship ended, and I am not referring to Johny Depp and Amber Heard, but rather bond and equity prices became positively correlated, so as yields rose, bonds took on capital losses right alongside equities. 

“And with yields set to stay high and volatile, that equities hedge can’t be relied upon. The portfolio consequence here is straightforward.

“AI could certainly help Australia's productivity problem, but I don't believe it can solve it. 

“AI will initially augment workers … but productivity ultimately depends on incentives, and Australia I think has lost many of the advantages that we had 20 years ago.”

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