EVEN in times of falling interest rates, investors can discover fixed-interest products that can add to their portfolio.
Managed bond funds and term deposits provide security and reasonable returns at a time when sharemarket volatility has frightened away many people from investing in the share market.
But Morningstar analyst Tim Wong says with fixed-interest investment, investors still have to decide on their objectives and risk tolerance.
”If you’re seeking a defensive strategy that can perform when the equities portion of your portfolio is struggling, then a high credit quality Australian or global fixed-interest-rate fund may serve you best,” he says.
Morningstar rates the Tyndall Australian Bond Fund highly. It has a strong investment team and is a competitively priced option.
Wong says Pimco EQT’s Wholesale Australian Bond Fund is another well worth considering.
Pimco EQT also has an impressive Wholesale Global Bond Fund, he says. Its investment strategy is overseen by one of the legends of fixed-interest investing, Bill Gross. ”That fund has the foremost strategy for investors looking for a core defensive global-fixed-interest option,” he says.
”The Macquarie Master Diversified Fixed Interest Fund is another fine strategy with some global exposure, delivering impressive results while maintaining a clear defensive philosophy.”
There are potentially higher-return managed bond funds in the market grouped in the credit or high-yield category. But Wong says an investor has to have a higher tolerance for risk before investing in them.
”These strategies normally have higher credit risks than high-quality Australian global-fixed-interest funds. In simple terms, higher credit risk means a greater risk of default and, increasingly, equity-like performance and risk,” he says.
So a bond fund that invests in overseas corporate debt should pay more, but you can face greater risk of that company not being able to meets its commitments to bondholders.
There could be currency risk as well with some overseas bond funds. If you are looking to protect your capital, it may make sense to make a more defence-oriented fund the core of your fixed-interest portfolio and allocate less to the high-risk, high-return options.
Financial comparison website ratecity苏州美甲培训学校’s Michelle Hutchison says term deposits are another good possibility for investors. ”Like all investments, there are pros and cons, due to the level of risk, features and services,” she says.
For instance, term-deposit accounts are a secure investment with minimal risk to investors because the interest rate is fixed and the government guarantees the deposit up to $250,000.
Also, many term-deposit rates are well above the Reserve Bank’s official cash rate, despite a decline in line with the cash rate falls in May and June.
”That’s great news for those looking to secure a term-deposit account. Longer terms are offering better deals on average than the shorter terms, with the average five-year term deposit recently at 5.01 per cent, compared with the average 90-day rate of 4.65 per cent on a nominal of $50,000.
”There is also a significant difference between financial institutions. Rates can also vary depending on the term and deposit size. There can be a 2.5 per cent difference [between] the lowest and highest three-year term deposits, which means a difference of $3750 in interest earnings on $50,000,” says Hutchison.
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