Fixed income bounceback due to low allocations
The resurgence of fixed income products has come about because allocations to them were historically low with Australia having the lowest allocation to the sector in the developed world according to Pimco head of global wealth management Peter Dorrian.
Dorrian said the turning of the tide was evident at Pimco with retail inflows into fixed income products doubling each year for the past four years, reflecting a move back to defensive assets.
“There is a natural end-point to this shift for us and we recognise that but we have also seen allocations as being very low to fixed income while many investors have discovered their balanced growth funds were not so balanced after all,” Dorrian said.
“Investors who placed their retirement incomes in a balanced fund in 2006/7 have lost 30 per cent, which they will never recover and in an environment where growth has gone having a portfolio dominated by equities has been shown to not be right at all,” he said.
At the same time cash rates have fallen to historical lows as well with Dorrian stating that investments in cash are also set to go backwards for the foreseeable future.
Dorrian said that a recent Towers Watson report states that Australia has the lowest allocation in the developed world to fixed income investments and a paradigm shift needs to take place in the mind of investors.
“We have a well developed accumulation system and we do well as investors in a pre-retirement setting but there is still a shift to take place in allocating assets towards the defensive. In a muted world market it is something we need to do if we are not going to see markets perform like they have in the past,” he said.
“The highest priority for those heading to retirement is to avoid losses again, even if it means avoiding possible returns. People are now looking for comfort over speed.”
Recommended for you
Australian Ethical Investment has announced the resignation of Andy Gracey, a portfolio manager and 20-year veteran of the firm.
Blackwattle Investment Partners has announced changes to its portfolio management as an equity manager who joined at the firm's foundation departs.
Fixed income managers have shared how they are reacting to rising intermediary demand for bonds, and whether they are likely to expand their ranges into private credit.
ETF servicing provider Calastone has entered into an agreement to be acquired by SS&C Technologies in a $1.5 billion deal.
