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Diversification across defensive assets essential

Investor portfolios require a mix of defensive assets as each category has a role to play in today’s market, a boutique fund manager has said.

“Following the global financial crisis, we keep having to learn the same lessons over and over again,” Grant Samuel Funds Management (GSFM) adviser Stephen Miller told the firm’s lunch presentation in Sydney today.

“And one of the lessons we always seem to learn in times of crisis is the first lesson of investing, which is diversification, and apply it not just to the whole portfolio, but presumably apply it to the defensive component of the portfolio as well.

“So presumably, there’s a place for absolute return, there’s a place for term deposits and notwithstanding some of the deficiencies of conventional bond products, there’s a place for them as well.”

Payden & Rygel Investment Management senior vice president Brad Boyd said the key message for fixed income is not to put all defensive assets into a basket.

“In fact, traditional bonds have a role to play; we just think that they have less of a role than they’ve had in the past,” Boyd said.

“And term deposits have a role in portfolios, though we believe global income provides a better prospect in terms of the overall return you get over your time horizon.”

GSFM New South Wales key account manager Stephen Higgins added it was an interesting time in markets, particularly for fixed income, which has had a tough 12 months.

“What we do want to highlight is that in a rising rate environment, absolute return funds continue to be relevant,” Higgins said.

“What we want to communicate to you is that we’re not trying to take away your term deposit money in your [clients’] portfolios, but rather we complement term deposits through the depth of global fixed income because of liquidity, capital preservation and cash plus return through the cycle.”

Boyd is also the portfolio manager of the Payden Global Income Opportunities Fund, which uses an unconstrained investment strategy to avoid being beholden to benchmarks.

It was designed to better navigate the complexities of the evolving fixed income landscape and changing economic environment than traditional benchmark-aware bond funds.

Payden & Rygel is a specialist manager under GSFM.

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