Time ripe for fixed income investments


By Jerome Doraisamy

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A desire for stability and predictability, borne out of low interest rates and increasing volatility, was resulting in a shift toward more defensive investment portfolios, according to Australian Corporate Bond Company (ACBC).

At a panel event launching the firm’s new white paper, “Lower rates for longer: Implications for Australian fixed income” yesterday, ACBC chief executive Richard Murphy said market conditions and product innovation made the current climate ideal for investors to consider fixed income investments.

“Recent innovations, such as XTBs (exchange-traded bond units), fixed income ETFs (exchange-traded funds) and exchange-traded Australian government bonds, are making it much easier for retail investors to access fixed income on the ASX,” Murphy said.

He said Australians had previously not felt the need to invest in fixed income due to lack of awareness and information , but the offer of stability and regular income meant it should form a critical part of any balanced portfolio.

Ord Minnett fixed interest analyst Brad Dunn noted that as equities continued to be volatile in nature, investors needed to factor in defensive mechanisms to protect their portfolio.

“When asking if you should invest in fixed income, the answer is always yes; the market is bigger than most people realise,” he said.

BondAdviser head of research Nick Yaxley echoed Murphy’s words, saying fixed income offered as much capital protection in the post-GFC (global financial crisis) environment as it had done before 2008.

“It is a defensive asset class. That doesn’t change no matter where you are in the [investment] cycle,” Yaxley said.

“It is very important that people take into account fixed income because of the concepts of duration that people miss out on.”
He said he regarded fixed income as being particularly important for self-managed superannuation funds (SMSF), which were the most underdeveloped market for fixed income.

“In the context of what a truly balanced portfolio should look like – and more specifically for someone who is in the pension phase – if you have a large exposure to the equity market, and you have zero defensive structures other than cash or term deposits, which provide zero real return right now, then you are always going to be subject to volatility,” he said.

“Fixed income is consistent and has low volatility. It is something you should have in your portfolio and it is something that the SMSF sector really struggles for over the long term.”

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