AMP Ltd. (ASX: AMP), one of Australia’s largest asset managers, has removed government bonds from some of its retirement funds amid concerns over their diminishing role as a portfolio diversifier.
The firm, which oversaw A$162 billion ($112 billion) as of February, no longer holds sovereign debt in retirement portfolios designed for younger investors.
AMP has also cut bond allocations across other funds over the past six to 12 months, according to Chief Investment Officer Anna Shelley.
The company has shifted toward corporate credit while seeking greater exposure to commodities and agriculture to better protect portfolios against volatility.
“The main thing that we’ve done in recent times is to really reduce our weightings to government bonds,” Shelley said in an interview on Thursday.
Shelley cited expectations that inflation will remain elevated, underpinning concerns “that we’re in a long-term, structurally difficult market for bonds — and we’re not convinced that they will provide the diversification benefits.”
Elevated inflation erodes the value of bonds over time, while their rising correlation to stocks reduces their ability to cushion equity losses during market downturns.
Cutting government bond exposure has also helped finance overweight positions in global equities, contributing to an 11.3% return for AMP’s MySuper 1970s portfolio for the year through June 30.
AMP is not alone in reassessing the traditional role of sovereign debt, with Australia’s Future Fund saying in 2024 it would look to hedge funds rather than government bonds to offset equity risk.
Colonial First State has also broadened its fixed-income allocations beyond government securities, with Chief Investment Officer Jonathan Armitage noting that “traditional defensive assets aren’t actually acting defensively anymore and that’s connected with the challenges around government budget deficits.”
Colonial First State delivered a 12.7% return for its growth-focused MySuper Lifestage 1975-79 fund for the year through June, aided by “exposure to private debt and other forms of fixed income” including catastrophe bonds and asset-based finance, Armitage added.
The moves by major Australian institutional investors signal a broader structural rethink of how large funds approach portfolio construction in a persistently inflationary environment.
