Bonds have exceeded equity returns over the last eight years by an average of 250 basis points per annum, while also exhibiting a fifth of the volatility, according to bond specialist, PIMCO.
PIMCO managing director and portfolio manager, Robert Mead found despite the comparative performance and the lower volatility, Australians had the lowest allocation to bonds in the world.
He referenced Willis Towers Watson’s global pension assets survey 2016, which found that the average Australian pension portfolio had a 14 per cent allocation to bonds, while other developed countries holdings were much higher.
The survey found the average US pension portfolio allocated 23 per cent to bonds, the UK allocated 37 per cent, Canada allocated 31 per cent and Japan had 57 per cent.
Mead said since the global financial crisis, the number of Australians aged 65 and over had increased by more than 750,000 – a rise of 27 per cent in just seven years.
With this dramatic shift, retirement income has become more important than ever, he said.
Mead suggested that given people’s investment horizons had become shorter, retirement income sources needed to have exposure to assets that had less volatility.
Australia’s economy had also shifted from mining to housing, but the housing sector would eventually be weighed down by highly leveraged consumers, he said.
House prices were expensive but supply limits had has not responded, said Mead. So, if you compounded that on top of what investors wanted, such as a stable retirement income, bond investment would increase in Australia for many years to come,
