GEM has been in bonds less than 30% of the time. Bonds have been responsible for only 20% of GEM’s profits.
Aggregate bonds have an average duration of only around 6 years. They are not as sensitive to interest rate changes as longer-duration bonds. Over 60% of their holdings are government debt. The remaining bonds are investment-grade and spread out over 6800 holdings. This means their credit risk is minimal. As the chart below shows, their returns have been relatively steady under varied market conditions.
We think it is reasonable to accept a little duration risk during most bear markets in stocks. But you can substitute shorter-term government bonds or Treasury bills for aggregate bonds with only a modest reduction in expected return. We apply dual momentum to a variety of bond sectors and cash equivalents in our Proprietary Models.