Franklin Templeton has been tactically adjusting its fixed income portfolios in expectation of a possible global financial crisis, which could see Australia fall into recession, and is looking to take advantage of attractive opportunities presented by the fallout.
Australian household debt to gross domestic product (GDP) was around the second-highest in the world and was currently at its highest level, leaving it vulnerable to a deflationary shock.
The Reserve Bank of Australia cut rates this month and was likely to cut again next month while the Federal Reserve and Bank of England both made emergency rate cuts to their own interest rates. With only a limited amount of cuts available to them, it was likely central banks would then need to embark on quantitative easing.
Andrew Canobi, director, fixed income at Franklin Templeton Investments Australia, said: “For our positioning, we started the year very defensively, longer duration and high in quality across sector and security positioning.
“We haven’t altered our general approach but have been tactically adjusting positioning to adapt to the changing market circumstances and opportunities. The quality of our portfolio is very high and the risk protection we have incorporated to guard against credit volatility has served us very well in recent weeks.
“We have continued to be tactical in rates positioning, adapting to the moves in markets. Macro positioning more broadly remains on the cautious side.
“Having gone into the current environment with a defensive stance, we find ourselves in a position to take advantage of attractive opportunities at some point, but we expect to be very patient and cautious.”