Bond returns hit as worm finally turns

The bond market has replaced equities as investment portfolio underachievers over the last quarter, a turnaround after having outperformed shares consistently over the previous two financial years.

Lacklustre bond results for the September 2003 quarter saw only four managers deliver a positive return, the latestInTechSector Survey reveals.

However, InTech says apart fromTyndall, which returned 0.41 per cent, no other Australian bond manager surveyed returned a positive result after management fees were taken into account.

The gross median return for bonds in the quarter was -0.14 per cent, compared to the median manager in the rebounding Australian shares sector, which returned 6.68 per cent.

InTech senior consultant Andrew Korbel says the results were driven by resurgent share markets which kicked in in mid-March this year.

“With an improvement in economic fundamentals and investor sentiment, long bond yields have risen by around 0.5 per cent in Australia and the US over the past quarter,” Korbel says.

“This resulted in many bond managers delivering negative returns, even if they were positioned to out-perform the benchmark. At the same time, this environment has afforded share managers the opportunity to recover some of the losses incurred over the past two years,” he says.

InTech says that while most investors are enjoying a good start to the financial year, any investor that switched out of shares and into bonds recently may be heading for a third year of disappointing results.