Investors turning to debt funds to manage volatility
Investors are increasingly looking to debt funds as an alternative to property and equities markets, with more than 10 funds launched in the past couple of months, said Justin Epstein, executive director of One Investment Group.
“Capital raisings vary from niche funds seeking less than $10 million to listed offerings such as Gryphon Capital Income Trust (GCIT) that is looking to raise at least $200 million and will be listed on the Australian Securities Exchange,” he said.
“For investors, the yields these funds can offer make them extremely attractive at a time when equity markets appear overpriced and volatile, and proper markets also appear fully priced.”
Epstein said these credit funds have come to the fore after investors realised they had been blindsided by the fully franked yields promised from blue-chip stocks, finding themselves exposed to market fluctuations.
“These debt funds are typically offering a return of anywhere from 3 per cent above the Reserve Bank’s cash rate to up to 15 per cent, with investors’ appetite for risk being the dominant factor on where to invest,” he said.
“Investors are also increasingly appreciating the fact that fixed income is a vital component of a diversified portfolio, offering stable yields and a lower risk of capital loss compared with equities and property, where investors are taking equity risk.”
Steven Fleming of Gryphon Capital Investments said investors have traditionally turned to hybrids for debt exposure but cautioned that these are also correlated to equity markets and therefore carry similar risks.
“We’ve received a very strong response to our listing, because the GCIT is offering a unique opportunity for investors to diversify their portfolio and secure a monthly income stream, via an investment strategy that has previously only been available to institutional investors.”
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