Australian fixed income: how does global infusion affect investment returns?

12 Jun 2018

A review of Australian fixed interest fund managers by Zenith has revealed a divergence in performance and risk volatility between investment teams based on location, which has impacted the returns to Australian investors over the past decade.
 
As part of its review, Zenith’s universe of rated Australian fixed income fund managers was separated into two categories: those with Australian-only investment teams, and those with a blend of domestic and offshore resources (globalised teams).
 
The analysis reveals that over the ten years to April 2018, globalised fund managers in the Australian fixed income space delivered higher annual returns on average (6.2 per cent) compared to their Australian-only counterparts with 5.7 per cent.
 
However, the higher returns have come at a cost in terms of increased risk volatility experienced by investors. Globalised teams recorded annualised volatility that was 0.15 per cent higher than Australia-only fund managers.
 
Andrew Yap, Zenith Head of Australian Fixed Income said “for financial advisers selecting Australian fixed income funds, we believe each approach has its advantages and there are merits to both. While globalised teams are potentially at a relative advantage with respect to the timely research of offshore companies issuing bonds in Australia, this can be offset by a local player if they have superior interest rate management or savvy trading skills.”
 
Of an investment universe comprising 97 funds, Zenith assigned 46 active ratings across bonds, corporate debt, specialist, cash enhanced and cash. Zenith’s coverage of the asset class continues to increase, with the addition of five new funds from Perpetual, CC JCB, Realm, Daintree and State Street. Four funds were rated “Highly Recommended” with no change is this rating category.