Speaking to InvestorDaily, BlackRock Australia head of fixed interest Stephen Miller said in the current environment fixed income investors can no longer afford to “set and forget”.
With increasing interest rates, investors should also be more proactive about managing diversification risk, he said.
“We still want that portfolio to have the essential attributes of a fixed income portfolio but we wanted to have a more diversified risk approach,” Mr Miller said.
“In the Australian context you might include non-Australian rates; in the global context it might include adding things like swap spreads, linkers, agility strategies, bank loans, mortgages, emerging markets, and even equity exposures,” he said.
“The idea is what it [gives] the manager the ability to do is spread risk far more evenly. In terms of our own experience what it does is it enables [investors] to build a higher yielding portfolio but with a lower [risk].”
Mr Miller also said that if investors allow portfolio managers to undertake a more diversified approach “not so beholden to the variation of the benchmark”, they will have a higher returning portfolio.
“If interest rates do go up, bond benchmarks may deliver negative returns,” he said.
“But [if] you can spread your risk around more effectively and in a more unconstrained way, in a way that best represents the views on the macro-regime in which you are operating, then you can have a higher returning, higher yielding portfolio with lower risk,” he said.
