A local wealth manager specialising in fixed income has highlighted a trend among investors, including SMSF members, whereby portfolio allocations are shifting away from cash and term deposits towards bonds.
“A lot of [the allocations to bonds we have been seeing recently] is coming from cash because I think in a high interest rate environment investors are saying: ‘If I can get 5.5 per cent from a one-year term deposit, I’ll just do that, I’m happy there,’ whereas I think now as we’re starting to see those term deposit rates come down, we’re starting to see people say: ‘Okay, well actually I can’t get the income I need from that cash, I’ll go to bonds, which are still giving me defensive exposure, but also more liquidity and a 2 per cent pick up on my cash,’” Income Asset Management head of capital markets sales Jenna Hayes noted.
Hayes pointed out the manager is seeing this type of action from SMSF members as well, but a better education around how bonds work would boost this transition.
“Australians are still under-allocated [in] bonds and a lot of that has just been [due to a lack of] understanding and awareness [and the need] to build up that knowledge base,” she said.
However, she recognised the situation is improving.
“Over the past couple of years, fixed income is definitely getting more and more airtime, which is [helpful],” she said.
With regard to the renewed popularity of bonds, Investment Asset Management credit strategy and portfolio management executive director Matthew Macreadie suggested advisers needed to understand where an increased weighting toward bonds is likely to come from when servicing their clients.
“I don’t think we ever really saw much investment at any stage from equities into bonds [because] I think it’s a different mindset,” Macreadie said.
“By far our biggest competitor is deposit money – that’s where most people’s money is.”
