Dodgy bond offerings slip under investor’s radar

There are a number of poorly structured bond products in the market that are little more than repackaged versions of those offered in the lead up to the global financial crisis which are being considered by empowered but uneducated investors according to Aberdeen Asset Management.

Aberdeen senior investment manager John Manning said there was concern about the weak structures of some bond issues resulting from a supply of cheap capital leading to the return of some of the ‘fruitier structures' that were prevalent in the first half of the last decade.

Manning said while planners and investors are being exposed to potentially news structures they were just the same as those from the past, particularly from 2006-2007, and exposed investors to high levels of risk.

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"The investment community needs to be paid for the risk it is taking but these offers are not leaving anything on the table. It is easy for them now to chase yield but many are not considering the long term," Manning said.

These types of investments were of concern according to Aberdeen head of Australian Fixed Income Nick Bishop who said that while consumers have become empowered to invest in a wide range of offerings they were often uneducated to do so.

"There is no training for investors in asset allocation, balancing risk or understanding correlations despite the fact they are making choices that impact the wider economy. If there wealth is gone then so is their spending power," Bishop said.

"No-one is asking questions about some of these bond offers which have the same risk as equities but only half the return. I don‘t doubt there will be a visible accident in the self managed super sector because empowerment and access has outstripped education."

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