Dimensional carried out a case study of periods in which interest rate increases were spread out over 12 months or amounted to a cumulative increase of 1.5 percentage points, both in Australia and the US, over three decades.
Based on common bond indices, the study showed that in three out of five periods of rising rates in Australia and two out of four periods in the US, longer-term bonds outperformed shorter-dated bonds.
Dimensional portfolio manager Steve Garth said the increases in official rates are not always replicated across bonds of all maturities.
Mr Garth warned that bonds are “extraordinarily efficient, which can make it counter-productive for people to try and tweak their portfolios because of interest rate expectations”.
“While there is intense speculation about the timetable for increases in interest rates, the record shows that basing an investment strategy on forecasting monetary policy changes is haphazard and unreliable,” he said.
