Public policy will wield a bigger hand in portfolio construction as governments play a more interventionist role in financial markets, a leading fixed income expert warned.

Mohamed El-Erian, chief executive officer and co-chief investment officer at PIMCO, said the traditional risk factors no longer completely protect investment portfolios from market fluctuations.

"There are five traditional risk factors: equity risk, credit risk, inflation risk factor, liquidity risk and time frame," he said.

"Today, we have to include a sixth one - the public policy risk factor. When you have governments entering markets as non-commercial players, it's like a referee that decides not only to be a referee but also be a player."

Financial services shadow minister Luke Hartsuyker reinforced this view in a media speech in Sydney this month. He said the Federal Government's long list of financial market reviews has curtailed investor confidence in the system.

El-Erian, who is visiting Australia to participate in the Reserve Bank of Australia (RBA) Symposium, said this new risk factor means investors should be wary of passive fixed income portfolios as sovereign risk tends to dominate benchmarks.

"Regarding the situation today, countries that have issued the most debt become most of the benchmark, which is not where you may want to be exposed to given the sovereign debt risk," he said.

"You are going to see a lot of adjustments as investors start to realise that 2010 is the year of sovereign risk."

PIMCO has over $1 trillion in fixed income assets under management globally. The firm manages more than $28 billion in Australia.

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