Charlie Morris, chief investment officer at Atlantic House Investments says: “Bonds have been the real conundrum for investors in recent years, as owning them has meant you made a lot of money in terms of capital gain, but that is not the reason people own bonds.
"The idea is to own bonds for income and equities for capital gain, but in recent years it has been the other way around.”
But Mr Watson notes that during the market carnage in March, government bonds, despite being at very low levels, performed as the original 60/40 theory implies they should, by rising in value.
The defensive qualities of gilts (UK government bonds) were demonstrated during the sell-off in March when it was the only sector in the Investment Association universe to go up, gaining 1.6 per cent.
Ben Yearsley, investment director at Fairview says “Gilts acted as a diversifier, by rising when other assets were falling in price.”
He says for this reason he “would always have some government bonds”, but adds that investors will likely emerge from the present crisis into a market where equities have fallen sharply in value and so are cheaper than they were, while government bonds have become more expensive than they were.
He said this may mean multi-asset portfolios switch to an 80/20 mix, with equities being the 80, to reflect the gap in valuations.
Mark Jackson, investment specialist at JP Morgan says with economic uncertainty rife, he expects that bonds will continue to outperform against equities in such a climate, even with valuations where they are, so he prefers to own bonds and also to hold cash.
Sunil Krishnan, head of multi-asset funds at Aviva Investors says the evidence of recent years shows that however low bonds yields have gone, “they can always go lower. "
This is especially true as interest rates have been cut, and it is hard to see rates rising anytime soon. Given the uncertainties that are out there, policy makers will not be rushing to put rates up.
Mr Coop says that while government bonds pose no “fundamental risk”, another risk that can cause an investor to lose money is “valuation risk”, which comes from paying too much for an asset.
He says that with bond prices already high, the risk is that economic events in the coming months and years cause inflation to rise, this reduces the spending power of the income generated from the bond and so make the price fall.
Mr Coop said: “If an asset is already cheap, then there is relatively little risk on the valuation side, but with yields where they are, it is difficult to say that government bonds are cheap right now.”
