Investors aren’t diversifying their fixed income portfolio enough and ensuring there is good liquidity, according to MLC Investment portfolio manager for debt assets Stuart Piper.
Speaking at the NAB Private Wealth annual conference in Melbourne, Piper suggested that investors are not using fixed income allocations to their full advantage and diversifying enough to provide better returns.
Piper nominated non-investment grade bonds and credit as two areas that have been neglected when building fixed income allocations.
A globally weighted fixed income allocation outperformed cash by 2 per cent over the past 10 years, so it was disappointing that NAB figures showed allocations to fixed income are approximately 9 per cent, compared to a 30 per cent weighting to cash, Piper said.
Credit has performed even better than that, he added.
The non-investment grade sector has generated incredibly good income and pays high yields, Piper said.
Just because low quality bonds don’t provide good diversification and can become illiquid doesn’t mean they aren’t good assets, he said.
Piper warned investors to be aware of interest rate risks when putting fixed income portfolios together.
