Fixed interest strategies still work, says Morningstar
Fixed interest strategies are still the best placed to provide an 'insurance policy' when risky assets like equities suffer, according to Morningstar's Sector Wrap-Up for fixed interest funds.
Questions about the need for fixed interest sleeves in investment portfolios have abounded due to the rising popularity of term deposits, hybrids and annuities.
Morningstar's report indicated that these products have shortcomings as dedicated defensive anchors and fixed interest sleeves were still the best way to leverage risk.
Morningstar found that both Australian and global fixed interest strategies have pros and cons and stressed the importance of choosing strategies based on how they coexist with a portfolio's existing fixed interest allocation.
Global fixed interest strategies can greatly increase a portfolio's diversity,especially in the non-financial credit sphere, however investors need to be mindful of the increased credit and liquidity risks involved, as well as the added risk of disruptions to income distributions as a result of currency hedging.
A global fixed interest indexer is also more susceptible to moves in bond yields than a purely benchmark-neutral Australian offering, and can offer high credit quality selection - although not to the same degree as an Australian-only vehicle.
Furthermore, Morningstar found that passive Australian fixed interest investors are heavily exposed to Australian government, semi-government, and supranational issuers.
In the face of an increasing array of flexible fixed interest strategies and a preoccupation with income return, Morningstar warned investors and advisers to remain focused on a portfolio's total return rather than just its yield.
The report assessed 44 individual strategies and awarded three the highest possible Morningstar Analyst Ratings of Gold.
PIMCO EQT Diversified Fixed Interest, PIMCO EQT Global Bond and Tyndall Australian Bond received the accolade, while Schroder Fixed Income was upgraded and new coverage was initiated on seven new strategies.
Recommended for you
Evidentia’s chief investment strategist Nathan Lim has announced his retirement after a 30-year career.
GQG Partners has marked its fifth consecutive month of outflows as its AI concerns lead to fund underperformance but overall funds under management increased to US$166.1 billion.
Apostle Funds Management is actively pursuing further partnerships in Asia and Europe but finding a suitable manager is a “needle in a haystack”.
Managed account provider Trellia Wealth Partners, formed from the merger between Betashares and InvestSense, has appointed its first managing partner.
