As any seasoned investor will tell you, there are myriad benefits to having a significant exposure to fixed income, and Australian bonds more specifically, within a sound, long-term quality investment portfolio.
These include known income, expected repayment of capital at maturity, diversification, as well as less risk compared to the share market.
FE Analytics defines the Australian Bond Sector as encapsulating those funds which invest a minimum of 85 per cent of their assets, after deducting any cash in the fund, in AUD-denominated fixed-interest securities. These will include government bonds, corporate bonds, index-linked bonds and supranational bonds.
And as data from FE Analytics shows, for those investors who may be seeking quality exposure to the Australian bond market there are two five FE Crown-rated Australian bond funds that are clearly head and shoulders above their peers over the past one-, three- and five-year periods.
Firstly, there is the Perpetual Wholesale Alternative Income strategy, which boasts total returns over one, three and five years of 6.93 per cent, 20.13 per cent and 35.06 per cent, respectively.
Close upon the heels of this fund is the DDH Preferred Income strategy, managed by Brisbane-based manager DDH Graham Limited, which has delivered total returns over the same timeframes of 4.18 per cent, 18.52 per cent and 27.34 per cent, respectively.
According to FE Analytics, the stated objective of the DDH Preferred Income Fund is to provide a higher yield than traditional cash management and fixed-income investments in all market conditions.
The total return will mainly comprise income from security distributions. Income will mainly be cash based with little or no franking credits, FE Analytics says.
The fund consists of a core portfolio constructed with reference to macroeconomic factors and industry exposure.
The balance of the fund is a tactical component that seeks to enhance returns via investing in short-term yield opportunities in the same fixed-interest asset classes, but especially those traded on the Australian Securities Exchange.
It is also worth noting one of the sector’s other top performers over one and five years – the BlackRock Enhanced Australian Bond strategy, which boasts a one-year return of 3.9 per cent and a massive five-year return of 25.77 per cent.
While not in the top five over the timeframe, the BlackRock fund is, however, no slouch over a three-year period, returning 10.51 per cent versus the sector’s 7.82 per cent.
The objective of the three FE Crown-rated strategy is to achieve superior investment performance through providing returns, before fees, that exceed those of the UBS composite Bond All Maturities Index over rolling three-year periods, while maintaining a similar level of investment risk to the index.
