“Traditional” bond moves costing investors
Conventional investment choices and the failure to distinguish between bonds could be costing investors significant returns, a boutique fixed interest asset manager says.
Altius Asset Management, a small firm launched by Australian Unity, believes the tendency to focus on traditional asset classes has made risk-averse fixed interest managers an unappealing choice in the current market.
Chris Dickman, senior portfolio manager at Altius, said given the steep yield curve for fixed interest, investors should also be looking at slightly longer, three-to-five year durations.
“In a falling interest rate environment, a longer-duration instrument will enjoy a larger capital gain than a shorter duration instrument, while some investments like cash or term deposits provide no capital gain potential at all,” he said.
Dickman said that given the recent weakness of the Australian dollar against the strengthening US economy, bond yields would remain sluggish.
“While we expect Australian cash rates may fall further, we believe longer dated bonds, especially Commonwealth, will sell off modestly, driven by higher yields in longer dated US Treasury bonds,” he said.
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