Pimco finds value in Australian bonds
Bond market specialist Pimco has released the results of a 10-year study which it says proves Australian investors would have benefited from a higher exposure to Australian bonds over the past decade.
Releasing the report this week, the company said the research showed that if Australian balanced funds had invested more of their portfolios in Australian bonds over the past 10 years, investors would have enjoyed increased investment returns and less volatility.
It said the findings were particularly relevant as large superannuation funds and financial advisers saw more of their baby boomer clients facing retirement in the next few years.
Pimco head of global wealth management Peter Dorrian said the research showed Australians would have received higher investment returns year-on-year for the past 10 years if their balanced fund had allocated more of the portfolio to fixed interest.
"More importantly, higher allocations to fixed interest should continue to provide less volatile returns, thus being less affected by market swings," he said.
Dorrian pointed out that, currently, balanced funds had among the lowest allocations to fixed interest in the world and the highest allocations to growth assets such as shares.
The average balanced model portfolio had a 15 per cent allocation to Australian fixed interest, plus an additional 9 per cent allocation to global fixed interest; while the average allocation to Australian shares was 31 per cent and global shares 23 per cent.
"While the past decade's bond performance has been strong, the future still holds plenty of opportunities for investors looking for returns, as spreads remain relatively wide," Dorrian said.
"Australian financial advisers should consider higher allocations to Australian fixed interest to benefit from these spreads and other fixed interest characteristics of reliable income combined with the potential for higher capital returns."
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