28th August 2018
Erika Mesmer, Client Relationship Manager
In fiction, the role of bonds in a balanced portfolio is to generate a regular income stream. They also guarantee a stable foundation, while other asset classes, labelled as risky, have the mission to provide thrill, volatility and higher returns.
In real life, the picture is currently very different: in Switzerland the yield of 10 year bonds of the Confederation reached the bottom in July 2016, yielding -0.60%. By the end of that year they were back to zero, but since then, they have fluctuated between -0.20% and +0.20%.
In the US, where yields have risen over the last two years, one year treasury bonds currently yield about 2.4% while the 10 year treasuries are nodding at 3%. While the yields achieved can be considered as acceptable (at least in comparison with bonds in Swiss francs or Euro), the flattening of the yield curve is cause for questions, as its implications are difficult to predict.
So who is then fulfilling the role of stable and reliable foundation in a balanced portfolio? As has been the case in the last few years, quality companies, with a stable management, with strong and visible business generating a regular income stream can pay out generous dividends. Swiss RE has a divide yield of 5.5%, Zurich 5.4%, the Swiss market (SPI), on average, 3.2%. They are the silent stars of a balanced portfolio.