Fixed interest allocation is an investor’s best hedge against volatile financial markets and advisers are keener than ever to understand the complex mechanics well enough to pass information to investors, a fund manager said.
“Fixed interest has become very topical,” Altius Asset Management chief investment officer Bill Bovingdon said.
“We’re getting a depth of questions, more insightful questions, from planners and advisers and consultants on fixed income that I’ve never before experienced,” said Bovingdon, who has spent about 20 years in the industry.
“I think there’s a real determination to really understand the asset class, and I don’t think that’s really been there before.”
Before the global financial crisis, advisers had been reluctant to embrace fixed income and, in particular, longer term instruments as an asset class, despite warnings that longer dated securities were the only way to diversify against equities volatility.
“There was a reluctance to even take the time to understand how that works but it’s certainly there now,” he said, adding it would take time to promote better understanding of fixed-income assets.
“Unfortunately, in this new world, fixed income has become synonymous with term deposits, hybrids and government bonds and there doesn’t seem to be any way of breaking out of people’s perception of that.
“If you think about hybrids, they act like equity when you want them to act like debt and vice versa.”
Value Partners head of fixed income research Fawaz Habel said Australian investors were paying too high a price for the risk imbedded in Australian hybrids, thinking the corporate names they know and trust, such as Westpac and AGL, were synonymous with value.
“I have no issue with the structure,” Habel said.
“I have a big issue with the risk. The risk in these hybrids is mispriced. Usually these things don’t end well.”
However, Habel said Australia was not the only country in which investors embraced their home bias at the expense of better returns.
“It’s not just here. It’s in every country,” he said.
