By clicking on your segment, you acknowledge that you have fully understood and accepted the

Patricia Schuetz, Senior Client Portfolio Manager

There are alternatives to traditional bond funds. Investors worried about higher interest rates should consider them.

They might not possess the glamour of stocks, but bonds are pretty much essential for most investors. Thats because they perform several important roles. As theyre interest-bearing loans to governments and companies that are repaid in full on a specific date, bonds have proved a reliable source of income. What is more, they tend to be less volatile than shares and hold up well during economic downturns. So adding them to an investment portfolio can provide much needed stability, particularly when the economic and financial climate is uncertain.

There are, however, signs that bonds could struggle to deliver quite the same degree of protection in future. Thanks to the policies put in place by central banks worldwide to contain the debt crisis in 2008, a growing number of bonds have become very expensive, with many now paying very low levels of income relative to their price. This means that, once central banks hike rates to more normal levels or inflation rises, bonds could suffer a steep decline in value. In other words, what has traditionally been safe could be less so.

Thats not to say bond investments need to be dialled down. Rather, this suggests investors should probably consider changing how they invest in them. One way to continue to secure the traditional benefits bonds provide is through an absolute return fixed income fund. Such funds aim to deliver more stable returns over the different phases of the economic cycle. Typically, they target a specific level of return over a specific time-frame – aiming to beat, for example, inflation or the interest rate on cash savings by a certain amount over a three-year period.smoother paths: absolute return fixed income funds aim to generate more stable returns than traditional funds

Return trajectories compared, for illustrative purposes only

Broadly speaking, absolute return bond funds do three things that mainstream bond funds dont usually do:

Invest across a broad range of countries, companies and currencies

Absolute return bond funds dont restrict themselves to one particular category of bond investment. They spread their net far and wide, and seek out the best investments from the widest possible range of countries, companies and currencies. This is a clear logic to this: experience tells us that the more diverse our investments are, the easier it is to navigate the peaks and troughs of economic cycle.

Controlling risks as a way of achieving returns

Absolute return fixed income funds see return and risk as different sides of the same coin. They therefore attach a high priority to controlling the risks that come with bonds.Its an approach that can help minimise the volatility that investors typically experience from one year to the next.

Because absolute return bond funds aim to shield investments from the worst effects of a markets ups and downs, they use financial tools that are designed to do just that. These tools the majority of which are derivatives have been used by professional investors for years as a way of controlling  or removing unwanted risks when the economy or markets take a turn for the worse.

Because they focus on preserving capital during times of market stress, absolute return fixed income funds can lend much-needed stability to an investment portfolio.

Of course, absolute return fixed income funds arent appropriate for all investors. They tend to be suitable for those who are willing to sacrifice some gains when markets are rallying as a trade-off for better protection during periods of turbulence. At the same time, it is possible that absolute return bond strategies might not deliver consistently positive returns over shorter time-frames.

Nevertheless, thanks to their many distinctive features, absolute return fixed income funds can lend much-needed stability to an investment portfolio. Thats something investors shouldnt ignore.

Patricia Schuetz joined Pictet Asset Managements Fixed Income team in 2014 as Senior Client Portfolio Manager.

Before joining Pictet, Patricia was a senior client portfolio manager at Invesco Asset Management for over four years, where she focused on global macro and credit strategies, including emerging markets and absolute return strategies. Previously she worked for five years as an account manager in PIMCOs London office, and brings more than 25 years of industry experience to her role.

Patricia holds an MBA from Columbia University in New York, a BS in Business Management and BA in German, both from Bradley University in Illinois. She is also a Chartered Financial Analyst (CFA) charterholder.

This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the funds prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available onassetmanagement.pictet.

This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.

The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the funds prospectus and are not intended to be reproduced in full in this document.

Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the funds full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.

EU countries: the relevant entity is Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg

Switzerland: the relevant entity is Pictet Asset Management SA , 60 Route des Acacias 1211 Geneva 73

Hong Kong: this material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited.

Singapore: this material is issued by Pictet Asset Management (Singapore) Pte Ltd. This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.

For Australian investors, Pictet Asset Management Limited (ARBN 121 228 957) is exempt from the requirement to hold an Australian financial services license, under the Corporations Act 2001.

For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.

Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).

In Canada Pictet AM Inc. is registered as Portfolio Manager authorised to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.

Some of the photographs published on this website have been taken byStphane Couturier, Magnus Arrevad, Lundi 13, Phovea, 13Photo, Magnum Photos, Club Photo Pictet.

This website uses cookies to enhance user navigation and to collect statistical data. To refuse the use of cookies, change your settings or for more information, please click on the following link:Cookies policy. By continuing to browse this website, you accept the use of cookies for the above purposes.