Market volatility leads to renewed interest in domestic bonds

Investment manager, Omega Global Investors, has announced the inception of its new Australian Bond Fund, offering a risk-controlled portfolio amid recent market volatility.

Omega has timed the release to capitalise on a renewed interest from institutional investors looking for a high quality investment grade bond portfolio with a stable return profile.  The fund will predominately invest in a combination of Australian government and corporate bonds.

 “Australia is in an enviable fiscal position compared to many other developed nations and Australian government bonds provide an attractive yield, especially on a risk adjusted basis. Australian corporate bonds also compare very favourably to their European and US counterparts, especially in the current market. This gives investors access to increased diversification and higher yields,” said Mathew McCrum, Omega’s Director of Investments. “All in all they carry much lower downside risk than those in almost any other developed country.”

The fund’s diversified portfolio invests in a range of quality Australian corporate, government, semi-government and mortgage backed security bonds, enabling access to issuers such as Rio Tinto, Woodside, BHP, Stockland and ANZ. 

While the domestic bond market is generally dominated by government issued bonds, Mr McCrum stresses the importance of a proactive approach to purchasing securities to avoid the pitfalls of following the herd. 

“It’s important to remember that there are still risks associated with bonds, so simply following the benchmark is inefficient.  At Omega we use a risk-controlled approach specifically controlling return volatility and we undertake a stringent screening process to identify high quality securities for our clients,” said Mr McCrum.

According to Mr McCrum, Australian bonds represent a great opportunity but are currently underrepresented in portfolios.  McCrum says Australians tend to have a total asset allocation to bonds of approximately 13 per cent compared to 50 per cent allocation to shares.  In other developed markets such as the G20 nations, the allocation is around 20-30 per cent.   

With market volatility and demographics of superannuation members migrating from accumulation to retirement phase, investment strategies have shifted focus to defensive assets.  Mr McCrum believes the Australian Bond Fund enables investors to tailor their asset allocation to best suit their investment strategies.

The Australian Bond Fund will be open from 9th September and will start with a $200 million FUM with a view to gradually increase its portfolio size.  The $200m investment into the Australian Bond Fund brings Omega’s total FUM to over $1 billion.