Diversified fixed income funds composed of alternative asset classes such as hybrid securities and global high yield corporate bonds are only achieving average performance despite strong returns in the sector according to an industry review released today by van Eyk research.
Of the five Australian managers assessed in the review, none qualified for an AA (highly recommended) rating, with the majority of managers achieving a B (average manager) result.
These findings follow returns in the diversified fixed income sector improving thanks to big rallies in the global corporate bond and emerging market sovereign debt markets.
“We believe this result reflects the fund’s limited histories and lack of strength across all criteria,” lead review analyst Nigel Douglas says.
“The review highlights the importance of managers getting sector weightings right, switching to better valued sectors at the right time and selecting well qualified managers to identify securities in those sectors,” Douglas says.
The five manager’s assessed by van Eyk were Colonial First State, ING, Goldman Sachs JBWere, Macquarie and Schroders.
The top performer of the group delivered 5.4 per cent above Australian bonds as measured by the UBS Composite bond index for the 12 months to 30 April, 2004. The UBS Composite Bond Index returned 2.6 per cent in the same 12 month period and 5.7 per cent over the five year period.
Despite the lack of an AA rating, van Eyk predicts diversified fixed income funds will play an increasingly important role in portfolios as they offer investors an alternative to the Australian fixed interest market which the research house says is limited by its lack of diversification, high average credit quality and low yield pick up.
The diversified fixed income sector is composed of 10 asset classes and security types such as global high yield corporate bonds, sovereign (government bonds), investment grade corporate and emerging market debt as well as inflation-linked bonds, mortgage backed and structured credit limits.
