Australians love to hate bonds but should they?
[[{"fid":"28081","view_mode":"default","fields":{"format":"default"},"type":"media","attributes":{"alt":"Australians need to change their love/hate relationship with bonds.","class":"media-element file-default"}}]]
Australians have the lowest rate of bond ownership in the world, according to global advisory group, Willis Towers Watson. But, some experts say they are very attractive long-term investments that mitigate risk in a portfolio.
Advisers and their clients should look at fixed income investments, such as bonds, as they offered less volatility than the current market and provided income, according to fixed income fund manager, PIMCO.
PIMCO managing director and head of portfolio management Australia, Robert Mead, said bonds were particularly important to investors who were getting older, had shorter investment horizons, could not afford to take on much risk, but needed income.
We analysed the 459 fixed income funds on Money Management's Investment Centre (MMIC) and Financial Express (FE), and found that only four produced a return of over eight per cent per annum, over the last 10 years.
Bentham's wholesale high yield fund generated the highest return with 9.40 per cent, followed by three of PIMCO's funds who all produced over eight per cent per annum.
[[{"fid":"28080","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":"Fund that produced 8% over the longer term ","field_file_image_title_text[und][0][value]":"Fund that produced 8% over the longer term "},"type":"media","attributes":{"alt":"Fund that produced 8% over the longer term ","title":"Fund that produced 8% over the longer term ","class":"media-element file-default"}}]]
Mead said they had diversified sources of alpha and also identified early that interest rates were going down and that generated very strong portfolio returns.
"Thinking about how to invest across different global interest rate markets, how to invest in the credit areas, how to think about currencies that are going up or down, and then actively positioning a portfolio to benefit from those proprietary views," Mead said.
He said their overweight position in the financial sector, post the GFC, was a large contributor to their outperformance, and their interest rate positions contributed to their recent success.
"We've been able to not only generate strong returns but also do it with a fraction of the volatility of other bond managers and a fraction of the volatility of the equity market," Mead said. Despite Australian's low take up of bonds, they were a core anchor in a portfolio to mitigate risk, he said.
Recommended for you
The alternative investment manager has signalled its intentions to repackage an existing fund into a second private equity vehicle, targeting both listed and unlisted opportunities.
The acquisition of Mason Stevens by Adamantem Capital has reached completion, as the wealth platform looks to increase investment into its services for Australian wealth practices.
Platinum Asset Management and VanEck have both announced name changes to multiple of their ETFs to clarify their complexity.
Active ETFs are gaining traction in Asia-Pacific as wealth managers seek to blend the low-cost fees of passive with active management.
