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Why style and quality matter
While 2021 was a breath of fresh air for equities , it was a challenging year for fixed income investors in general . Bonds underperformed equities as yields rose from near record levels , whilst equity markets were buoyed by optimism over a global economic recovery and strong performance – particularly from growth stocks . That being said , bonds still continue to play a crucial role in portfolios as they provide diversification and dampen volatility for those investors with exposure to equity markets .
Divided recovery 2021 provided a positive backdrop for risk assets – the rollout of coronavirus vaccines allowed economies to reopen , while fiscal and monetary stimulus boosted demand . However , as economies opened , supply struggled to cope with the supercharged recovery following the steep Covid- 19 induced recession of 2020 . As a result , bottlenecks emerged across supply chains , with shortages of inputs and labour weighing on the pace of recovery . Oil prices shot up and consumer prices have followed suit , with inflation reaching its highest level in decades across key markets . US inflation hit 6.8 % YoY in November – a 40-year high – while eurozone inflation soared to 4.9 %, the highest reading since records began in 1997 , two years before the euro was launched . Against the spectre of rising price levels , central banks have begun to rein in quantitative easing , and some are beginning to raise interest rates – posing a further challenge to fixed income investors : how to strike the right balance between capital preservation and income .
Yield-hungry investors Amidst such a backdrop , defensive fixed-income assets have lagged compared with riskier segments of
/ 20 / trustnet . com