As investors found out during the fourth quarter of 2018, volatility makes for a challenging environment in the equities market, but a safe-haven move to the fixed income market also poses its own challenges. One corner of the bond market that especially saw inflows was short duration bonds, but Samantha Azzarello, Global Market Strategist at JP Morgan ETFs also feels more duration can help shore up fixed income portfolios during times of volatility.

“I think the appeal of short duration in 2018 is going to continue in 2019,” said Azzarello. “Being able to get a little bit of income on that short end of the curve—we still think that’s important. However, we’re also saying you need to have a little more duration in at least a part of the portfolio just to have a balance, just to have protection if volatility hits.

The go-to bond play for broad-based exposure is the iShares Core US Aggregate Bond ETF (NYSEArca: AGG), which tracks the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index. The AGG gives bond investors general exposure to the fixed income markets, but there are times when current market conditions warrant a deconstruction of the AGG.

“I think more active within fixed income is called for, and even just more granularity,” said Azzarello. “So, I agree the Barclays AGG used to be the be all end all for the fixed income market. Not anymore. We know we can do better than that, we can have a better duration profile, we can get a bit more income and just be a little bit susceptible to market moves if we’re smarter with how we implement within fixed income.”

In the video below, Steven Major, global head of fixed income research at HSBC, discusses the outlook for global bond markets and inflation. He speaks on “Bloomberg Surveillance.”

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