Clients seek sustainable income in bonds
Clients are becoming more ‘pointed’ in their requests for sustainable income and less volatility in their fixed income allocations as they struggle to generate income in a low interest rate world.
Speaking to Money Management about the launch of the firm’s Hybrid Opportunities product, Daintree portfolio manager, Brad Dunn, said he had seen increased demand from clients for a product like this.
“We haven’t had clients specifically asking for hybrid products but what they are asking for is ways to generate sustainable income with less volatility and for capital preservation over time.
“In an environment of low interest rates, which are likely to stay low, the question of how to achieve that and what they can add to their portfolios is being asked more pointedly by clients.”
He said hybrids were familiar for Australian investors and were already used as a sub-set of the firm’s Core Income and Higher Income funds.
The fund would invest in a diversified portfolio of 25-125 hybrid bank securities including Credit Suisse and ING Group, targeting a return of 3.5%-4.5% per annum above the cash rate, with quarterly income distributions.
“Hybrids offer some of the best yield in the fixed income market for a near-investment grade credit rating, with lower risk than investing in equities markets.”
“Over the past decade banks have strengthened their balance sheets as a result of tougher capital rules and they have a high average credit rating. We believe banks are also well positioned to benefit from rebounding economies as the world emerges from the COVID-19 pandemic,” he said.
The fund would also be available in a single unit structure which Dunn said would enable the firm to target the “broadest range of investors possible”. This would work by allowing investors to apply for units directly via a platform or via the Australian Securities Exchange (ASX) via a stockbroker or trading account.
“Our goal was to allow investors to choose their preferred method of access, with the option of having the real-time liquidity that comes with investing on an exchange.
“On-market funds are particularly popular with retail investors as they typically do not have a minimum investment amount, with the exception of the minimums that are imposed by brokers.”
AUTHOR
Laura Dew
Recommended for you
The latest budget papers have outlined a $10 million provision for ASIC greenwashing enforcement activity as well as funds for a sustainable labelling regime to be partially met by industry levies.
Betashares has expanded its fixed income solutions with the launch of a new ETF offering exposure to subordinated bonds issued by the big four Australian banks.
The latest monthly Bank of America global fund manager survey has found investors are starting to shift cash into bonds as cash allocations reach a three-year low.
AUSIEX analysis has discovered the net traded value of Australian dollar fixed income ETFs more than doubled from January to April, reflecting growing investor demand.
