19 Funds Rated Recommended
Zenith Investment Partners Pty Ltd (Zenith) Investment Analyst Steven Tang has announced the completion of the 2010 Fixed Income Sector Review and confirmed that from an initial group of 91 fixed interest funds, 7 were rated HIGHLY RECOMMENDED and 12 were rated RECOMMENDED.
In addition to being added to the Zenith Recommended List these 19 Funds are also candidates for client model portfolios.
The key changes to the Recommended List post the review include the addition of 5 new funds across various categories as well as upgrades for 2 existing funds. The 19 funds that were rated Recommended or above are shown below:
Australian Fixed Interest – Bonds
- Australian Unity Vianova Strategic Fixed Interest Trust (Recommended)
- Legg Mason Australian Bond Trust *NEW* (Recommended)
- Tyndall Australian Bond Fund (Highly Recommended)
- Vanguard Australian Fixed Interest Index Fund (Recommended)
Australian Fixed Interest – Corporate Debt
- Macquarie Income Opportunities Fund (Highly Recommended)
Australian Fixed Interest – Specialist
- Goldman Sachs JBWere Core Plus Australian Fixed Interest Fund (Highly Recommended)
- Perennial Tactical Income Fund (Recommended) International Fixed Interest – Bonds
- Advance International Fixed Income Multi-Blend Fund *UPGRADE* (Highly Recommended)
- EQT PIMCO Wholesale Global Bond Fund (Recommended)
- Vanguard International Fixed Interest Index Fund *NEW* (Recommended)
International Fixed Interest – Corporate Debt
- Colonial First State Wholesale Global Credit Income Fund (Highly Recommended)
- Bentham Global Income Fund (Recommended)
- Bentham Syndicated Loan Fund *NEW* (Recommended)
Diversified Fixed Interest
- Colonial First State Wholesale Diversified Fixed Interest (Recommended)
- EQT PIMCO Wholesale Diversified Fixed Interest Fund *NEW* (Recommended)
- Macquarie Diversified Fixed Interest Fund (Highly Recommended)
- MLC Diversified Debt Fund *NEW* (Recommended)
- Schroder Fixed Income Fund *UPGRADE* (Highly Recommended)
- Vanguard Index Diversified Bond Fund (Recommended)
Last year’s Fixed Interest Sector Report focused on the changing nature of Bond Indices and the effects this could have on future performance of fixed interest portfolios as well as the importance of maintaining Strategic Asset Allocation.
While these topics remain relevant today, this year Zenith chose to address some investor concerns, specifically whether to use diversified fixed interest funds or specialist sector funds and the veracity of the ‘Bond Bubble’ claims.”
The last few years have been a roller coaster ride for investment markets and investors alike. During this period many investors were understandably disappointed with the performance of their investments, particularly those they thought were defensive.
Unfortunately, many products labelled as diversified fixed income funds were among these defensive investments that failed to deliver on expectations.
Following this disappointing period it’s not surprising that many investors questioned their fixed income allocations. The natural question became ‘if the diversified offerings had failed to deliver on expectations would it be better to segregate the fixed income allocation and allocate to specialist managers?’
In response, Steven Tang offered the following insight, “While a simple portfolio construction exercise, in which mandates are separated and return data over the past few years is used, lends credence to the intuitive appeal of this idea (based on the presumption that these specialised managers have superior skills within their more defined mandates), the outcome is highly dependent on the investor making the correct initial and ongoing asset allocation decision.”
Although it’s simple in hindsight it’s historically a very difficult task to execute successfully and can dramatically change the outcome. Performance over the past few years by diversified fixed income managers has been more a reflection of their strategic benchmarks than their lack of skill in this area.
Given the changing fixed income landscape these managers remain better placed to exploit the diverse range of opportunity sets, alleviating investors of the complex asset allocation decision.
It’s for this reason that Zenith’s Recommended List and fixed interest portfolio exposures remain biased to Diversified Fixed Interest Funds.”
In reference to the debate concerning the existence and threat of a ‘Bond Bubble’ in the US Treasury market Steven Tang observed that using the typical definition of a ‘Bubble’, i.e. irrational market behaviour driven by speculative mania, it’s unlikely that the US Treasury market represents a ‘Bubble’.
Unlike other financial markets, investors know exactly what returns they will receive if they hold until maturity (assuming no defaults). Additionally, short-term gains are likely to be very modest given current yields. More likely investors are looking for a safe haven for their savings given their torrid experiences of the last few years and the current uncertainty in global financial markets.
Steven Tang concluded, “Nevertheless, it’s definitely possible that investors could face a capital loss as bond yields rise. However, while they may not remain at their current lows, it’s difficult to see a near term catalyst for a rapid rise in yields which would result in large investor losses.”
“In the future, US growth may surprise on the upside, the US Federal Reserve may maintain its loose monetary policy for far too long, creating massive inflationary pressures, or demand for US Treasuries could dissipate making US Treasuries an appalling long-term investment.
“But not in the near-term.”