Sub-prime’s fixed interest fall-out

Ratings House Zenith Partners has placed 10 products on its recommended list following its 2007 Fixed Interest Sector Review, warning that investors have become increasingly concerned with returns produced by fixed interest and income funds relative to high returning cash savings accounts.

The Zenith analysis, released today, points to the rising interest rate environment as having been the catalyst for poor bond fund returns.

It said credit (corporate debt) funds had been severely impacted by the US sub-prime mortgage market collapse and “the subsequent contagion effect on broader credit markets”.

“In the face of these conditions, new entrants to the cash savings account market (BankWest, RaboBank) are now offering yields above the Reserve Bank of Australia official cash rate as short-term ‘loss leading’ strategies to entice new clients,” the analysis said.

It said that while these cash rates were very enticing, it was important to acknowledge the current ‘running yields’ (the income yield of the portfolio divided by the total value of the portfolio) of many fixed interest and income funds had significantly improved post the sub-prime collapse.

The 10 funds to make it onto the recommend list were:

* Credit Suisse Syndicated Loan Fund — Highly Recommended (Upgrade);

* Macquarie Diversified Fixed Interest Fund — Highly Recommended (Upgrade);

* Putnam Worldwide Income Fund — Highly Recommended (Upgrade);

* CFS Wholesale Global Credit Income Fund — Recommended (Downgrade);

* Credit Suisse Global Hybrid Income Fund — Recommended;

* DDH Global Fixed Interest Alpha Fund — Recommended;

* Elstree Enhanced Income Fund — Recommended;

* Macquarie Income Opportunities Fund — Recommended;

* Perpetual’s Wholesale Diversified Income Fund — Recommended; and

* Principal Global Strategic Income Fund — Recommended.