It’s got to be bonds

With many economists predicting a market correction, now is the time to buy into the bond market, according to Tyndall Investment Management head of bonds Roger Bridges.

He believes the counter cyclical nature of bonds makes them an important part of an investor’s portfolio.

“The fact that things have been so good for so long [means] people are taking on more risk than they probably should do,” he said.

“I think it comes down to the fact we have had good times for a long time, [but] you can’t always say we won’t have a cloudy day.”

Bridges said having bonds in a portfolio during a market downturn would provide an investor with some protection from interest rate cuts.

“Bonds fit into it because if risk aversion comes around and the economy, in the worst case scenario, does go into recession, you will see lower interest rates; [but] because you have locked your interest rates in the bond over a period of time it is protecting you from the Reserve Bank having to cut interest rates,” he said.

“It’s just that bonds have been expensive for quite a long time and I think most people [are] probably sitting just in cash and equities without that protection from what we call duration (i.e, you are locking in that interest rate for a period of time).

“So if interest rates do change they are protected for the period of time of the life of that bond.”

Bridges added that this, combined with the fact bonds are currently sitting at the upper end of their fair value range, means now is a good time for the discerning investor to consider bonds.