Fixed income investors should manage interest rate risk most carefully and buying inflation bonds might be one way to do it, co-head of Australian Fixed Interest at Janus Henderson, Jay Sivapalan, said.
According to the market’s expectations, inflation – which was low at the moment – would continue to decline over the span of the next ten years, impacting the fixed income market.
However, it was the market expectations regarding the potential cuts by the Reserve Bank of Australia (RBA) that mattered most to fixed income investors.
“The market says that RBA is going to cut twice to one per cent and even lower so the market has a long way to pricing in a pretty dire scenario in Australia,” Sivapalan said.
“And if that shifts back even a little bit that’s bad for fixed interest.
“In summary the fixed income asset classes are always relevant, it’s a portfolio insurance but we reckon a lot of questions will be on investors’ minds are still what’s the future look like.
Therefore, investors should look at funds with a flexible approach to navigate this market and those which would be able to provide the same income levels even when the bonds market delivered poor returns going forward.
“Our flagship product called, the Tactical Income Fund, is a fund that has sufficient flexibility to deal in particular with interest rates risk.”
According to FE Analytics, the Janus Henderson Tactical income Fund returned 2.96 per cent and 3.13 per cent over the last three and five year periods, respectively, as the chart below showed.
Janus Henderson’s Australian Fixed Interest fund last week won Fund of the Year in the domestic fixed income category at the Money Management Fund Manager of the Year awards.