I attended a presentation by a firm last week, considering asset allocation in a low yield environment. The firm in question is a US based quant shop (they style themselves as ‘systematic investors’), who employ some highly regarded market practitioners as well as banks of PhDs. They run a range of strategies including risk parity.

The presentation was elegantly crafted and engaging. Its central theme was that bonds still have a full role to play as diversifiers in balanced portfolios and that investors should continue to rely upon capital values to appreciate despite the paltry yields on offer. This argument is almost entirely reliant on the assumption that there is no lower bound to interest rates.