Investment manager Omega Global Investors predicts the demand for Australian and international inflation-linked bonds will steadily increase over the next decade, with both markets recording recent strong returns.
“Institutional investors increasingly want access to both the domestic and global inflation-linked bond markets, allowing them to make tactical decisions regarding allocations between the two based on their views of global market conditions,” Omega Managing Director George Vassos said.
“This value proposition for investors is supported by strong growth, with both domestic and international inflation-linked bonds returning more than six per cent over the last six months, in a time of high volatility in the global markets.”
Omega began managing mandates for both Australian and global inflation-linked bonds in the past 12 months as the institutional market looked to increase allocations to this asset class.
“The increasing number of baby boomers heading into retirement this decade has shifted the focus from investment strategies relevant for the accumulation phase of a superannuation plan to those that are more in line with the objectives of a retiree – a concentration on income and a return on investment over the rate of inflation,” Mr Vassos said.
“This market wants to increase their exposure to asset classes that deliver consistent income and don’t diminish the purchasing power of their retirement pool.”
Mr Vassos said the growth of both domestic and international inflation-linked bonds is linked to the global demographics of superannuation members and the expectation that inflation will generally increase in the next 5-10 years.
“Inflation is definitely at the forefront of the Reserve Bank’s mind in Australia, plus there is the broad expectation that it will pick up around the world – for example China recorded an annualised inflation rate of 6.4 per cent in June,” Mr Vassos said.
Mr Vassos said Omega is one of the few boutique managers to have a mandate for both domestic and international inflation-linked bonds, enabling investors to tailor their allocations between the two to suit their needs.
He said the increasing appetite for Australian inflation-linked bonds would likely grow the supply and depth in the marketplace, with more issuance expected from Australian governments, both at federal and state level.
“Increasingly, investors are looking for asset classes which are CPI linked or fixed income as a total asset class, and this really fits with our capability across the defensive asset spectrum,” Mr Vassos said.
