Hart says that to date, direct fixed income investment has not been high on most planners’ agendas, simply because corporate bonds are not generally accessible to retail investors, and the issuance of government bonds has been limited.
“The future of [direct investment] is interesting, because in Europe and the US every portfolio would have a generous allocation to fixed income,” Hart says.
“In Australia there’s been much more of a focus on equities and property. If, as a result of these lessons that we have all been through [during the GFC], fixed income then becomes as essential in a portfolio – which in our view it is – then I think it’s here to stay.
“There’s less risk than equities, and there’s less volatility than equities. In fact, we did an exercise and over the last five years, in government bonds, the volatility was one quarter of the volatility of the S&P/ASX 200 yet the return was 1.7 per cent less. So you were taking four times the risk for a 1.7 per cent extra return.
“If we do our job properly then planners will understand the ongoing need for the majority of their clients to hold a reasonable allocation to fixed income. “Because of the negative correlation with equities, if you’ve got one, you should have the other. Negative correlation [to equities] comes from government bonds, and from high-ranking corporate bonds as well.”
