Investors need to rethink the way they derive income by looking to assets like global credit, says Bentham Asset Management.
Bentham Asset Management said investors need to move away from traditional income sources – like high risk equities and bonds – and consider global credit as a way to diversify away from the domestic market while generating an income.
Bentham Asset Management managing director Richard Quin said: “There’s a tendency to think that investors need to choose between the high volatility/high risk of shares, and the low risk/low return of fixed income, when in fact there is a ‘missing’ asset class that can fill the gap.
“Global credit has been proven to deliver good income with an attractive, diversified risk profile."
Mr Quin reiterated that bonds no longer provide enough income to beat inflation and therefore investors must consider alternate options.
"The days of government bonds delivering eight per cent are over. Now, they are struggling to simply beat the inflation rate because the structural factors that delivered high returns in the past (ie. falling global yields and inflation levels) are likely no longer in play."
According to Mr Quin, when considering credit in a portfolio, exposure to different credit sectors is preferred. This allows investors to manage both risk and returns.
He also argued that in Australia there is a misconception around the role of credit in portfolios.
“We believe global credit isn’t always well understood in Australia. For example, it tends to be more resilient to shocks: when credit markets fell in the GFC, they took just 1.5 years to recover, compared to 4.5 years for equities,” he said.