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Buyer beware tip as fixed income fragments

The latest Zenith Investment Partners fixed income sector review has shown managers are adopting innovative strategies to maximise return, with some solid results.

The research house’s assessment showed the global fixed income market, as represented by the Barclays Global Aggregate Index ($A hedged), generated a return of 10.37 per cent for the year ended 31 December 2014.

“The rally in markets, driven mainly by further compression in yields, is in sharp contrast to the continued proliferation of unconstrained strategies, which in part have been designed to better navigate a rising rate environment,” Zenith head of fixed income Steven Tang said.

He pointed out that in this environment of varied strategies it was imperative for individuals to distinguish and understand the different investment methods used, particularly when looking at unconstrained versus income-oriented strategies.

Further, Tang warned investors not to expect a consistency of outcome from all managers due to the varied nature of the strategies involved.

“While Zenith believes that [unconstrained strategies] have strong conceptual merit, a caveat also needs to be applied,” he said.

“Given most of the strategies lack an extensive live performance track record, it’s still too early to say with high conviction that these strategies can produce an investment outcome consistent with the proposed merits.”

The sector review examined 80 global fixed income funds, and the Legg Mason Brandywine Global Opportunistic Fixed Income Trust Class A offering was the only fund to be awarded a highly recommended rating.

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