Advisers underestimate fixed income return potential
Advisers are underestimating the return potential of fixed income with a focus on reducing volatility, according to PIMCO.
PIMCO head of global wealth management Peter Dorrian said while financial advisers were understandably looking for security and reliability from fixed income allocations in a volatile investment climate, they misunderstood the full value proposition offered.
PIMCO commissioned an online survey of more than 200 financial advisers, conducted by Marketing Pulse, which revealed that 51 per cent of advisers stated that the main barrier to considering whether to raise their retiree client allocations to fixed income was the belief that clients expect higher investment returns. As a result, only 20 per cent of financial advisers said they were looking to increase retiree clients’ fixed interest allocation, 90 per cent of whom said the reason was to reduce volatility.
PIMCO stated that actively managed bonds outperformed shares over the past 10 years.
“The outperformance of PIMCO’s own fixed interest funds versus the share market shows actively managed fixed interest funds can provide a competitive combination of low volatility (compared to riskier assets like shares) as well as strong returns,” said Dorrian.
“While most financial advisers surveyed reported returns of between 5-7 per cent per annum in the past couple of years from their fixed income allocations, our fixed income fund returns for the same period were almost double that, including 12 per cent per annum for the Australian Bond Fund, 11.5 per cent per annum for our Global Bond Fund and 11.75 per cent per annum for our Diversified Fixed Income Fund.”
Head of portfolio management for PIMCO Australia Rob Mead said that the ‘new normal’ would see deleveraging and reregulation further crimping returns from riskier assets like shares.
Recommended for you
Insignia Financial has reached a major milestone in completing the separation of MLC Wealth from NAB, having acquired the firm back in 2021.
There could be changes ahead for how ASIC requires licensees to handle conflicts of interest as the corporate regulator announces it will be meeting key stakeholders next year to update guidance.
Proper recordkeeping has been described as the “mortar between the bricks” of the advice process and critical to an FSCP decision as an adviser is suspended for failures in this area.
As investors increasingly seek to embed ESG considerations in their portfolios, a specialist adviser has offered tips for financial planners who may feel overwhelmed in tackling these complex topics with clients.
