Maximising fixed income through diversification
Two investment professionals have underscored to advisers why integrating a broad range of fixed income exposures in client portfolios is critical for optimal returns.
Andrew Yap, head of multi-asset and Australian fixed income at Zenith Investment Partners, outlined how financial advisers can harness fixed income to deliver stability for clients.
“For many investors, fixed income is seen as a defensive asset class, one that provides exposure to securities that have capital preservation qualities and an income stream at a premium to cash,” he explained.
“These characteristics are deemed to be particularly pertinent in times of extreme market volatility, as seen across global equity markets throughout August.”
Fixed income investments have also gained popularity in recent months as investors look towards term deposits to take advantage of attractive rates offered by major and regional banks.
“While Zenith considers term deposits to be a valuable addition to an investor’s portfolio, particularly where cash rates are high, we also believe a broader set of fixed income exposures should be considered to maximise the prospects of income, sustainability and access to liquidity,” he noted.
Speaking alongside Yap, Andrew Canobi, director of Australian fixed income at Franklin Templeton, emphasised the importance of diversification when pursuing income from fixed income assets.
“There are a couple of dimensions that investors need to consider. For example, the time frame for an investment approach, the risk profile of an income stream and liquidity. When approaching an income portfolio, diversification across these three dimensions is very important,” Canobi said.
With fixed income assets ranging from government bonds and corporate bonds issued by companies to floating rate securities and Australian dollar securities, the director encouraged advisers and investors to consider the wide range of exposures available.
Canobi added: “I think good portfolios will make a judgement as to how to combine those [options] at different stages of the cycle to build the most optimal returns and income profile for investors.”
Last week, research from VanEck detailed which elements of fixed income and credit have performed the best since the start of 2024.
Looking at the one-year and year-to-date performance of various assets, it found the best-performing asset is European bank hybrids which have returned more than 20 per cent over one year and more than 10 per cent since the start of the year in Australian dollar terms.
AUTHOR
Jasmine Siljic
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