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Investment bonds dominating multi-asset strategies

Investment bonds dominating multi-asset strategies

Jessica Yun
— 1 minute read

Investment bonds have enjoyed a resurgence of interest over the past 10 years, says Zenith Investment Partners.

According to Zenith’s latest Investment Bonds Sector Report, the percentage allocated to investment bonds within multi-asset strategies has surged from 10 per cent to 45 per cent in the six years up to May 2017.

Funds under management held by the investment bonds industry came to $7.4 billion as of 30 June 2017, the report said.

Meanwhile, the percentage allocated to “traditional mainstays” such as cash and fixed income had nearly halved since mid-2011, dropping from 58 per cent to 26 per cent.

Zenith senior investment analyst Dugald Higgins said that industry shifts, such as regulatory changes to the superannuation space, had created an environment and demand for alternatives.

“Many multi-asset funds have evolved to become an increasingly attractive proposition and have come a long way from the relatively fixed asset allocations between equities, bonds and property,” Mr Higgins said.

“Post the GFC, there has been a substantial move towards more dynamic asset allocation that’s flexible, with an increased range of non-correlated asset classes such as alternatives.”

Moreover, in an environment constituted by “the falling global interest rate environment and subsequent concerns around the implications of rising interest rates”, the interest in investment bonds was a “logical outcome,” the report stated.

Continuing, the report said: “In the wake of the decline in cash and Australian fixed interest, the dominant source of growth has been in multi-asset funds which now make up approximately 45 per cent of FUM.

“To a certain extent, Zenith believes that this mirrors the rise in the use of multi-asset exposures by investors and advisers more broadly.”

The report pointed to the fact that the contemporary multi-asset strategies had evolved from “more traditional balanced funds”.

“The current generation of investment bonds typically offers access to all the core assets classes (cash, fixed interest, equities and property),” the report added.

“This remains a significant improvement on older-style bonds where investment options have traditionally been limited.”

However, while multi-asset strategies had become more popular, Mr Higgins argued that single-sector strategies nonetheless had a role to play.

“At Zenith, we encourage our clients to also think outside the square in developing client solutions to meet specific objectives or thematic preferences,” Mr Higgins.

“For example, single sector choices may work best for large-scale clients seeking tailored portfolios or specific outcomes — such as socially responsible investing or maximising taxation arbitrage through franking credits — where multi-asset portfolios may not be as effective.”

 

Investment bonds dominating multi-asset strategies
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