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Wednesday, 19 January 2022
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Floating rate bonds protect investors from capital losses of long-duration fixed income as rates rise. Hybrid structures offer higher yields backed by strong banks issuing on both the ASX and in unlisted OTC markets.
As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.
It used to be Down, Down for prices but the new status quo is Down Down for emissions. Until now, the realm of ESG has been mainly fund managers as 'responsible investors', but companies are now pushing credentials.
There are plenty of voices on both sides of the inflation argument, but the ultimate impact of COVID should be deflationary. Australia is one of the last places to expect worrying signs of inflation rising.
There's an assumption that bond yields and share prices have a predictable relationship. The positive correlation means that when yields rise due to a strong economy, so should stocks. That's not what happens.
The collapse of Virgin Australia not only hit shareholders, but their bond investors received between 9 and 13 cents in the $1. A widely-diversified portfolio can tolerate losses better than a concentrated one.
Most Australians place their superannuation into a balanced fund, making the relationship between bonds and equities a vital part of performance. Does the traditional correlation between shares and bonds still hold?
Warren Buffett's annual letter has a simple focus on long-term investing: "All that’s required is the passage of time, an inner calm, ample diversification and a minimisation of transactions and fees."
Equity valuations are lofty, but long bond rates have now returned to levels before the pandemic crisis. In a balanced portfolio, long bonds now provide more opportunity to cushion the volatility of equities.
Although Australian investors are among the most ESG-aware in the world, with the vast majority wanting responsible and ethical investments, there are still some misconceptions to dispel.
The 60/40 diversified portfolio has been the mainstay of the superannuation industry for decades. But it is built on a fundamental principle of defensive bond returns, and its time is nigh.
Fixed income opportunities beyond term deposits and hybrids remain scarce for retail investors, but active bond funds can access other securities where value is still available. Here are examples.
Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.
Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.
The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.
This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.
The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.
Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.