Morningstar has released its Sector Wrap-Up for fixed income funds, covering 47 individual strategies.
Key Findings
- Three of the 47 strategies we assessed achieved the highest-possible Morningstar Analyst RatingTM of Gold – PIMCO Australian Bond, PIMCO Diversified Fixed Interest, and PIMCO Global Bond. We designated seven offerings Silver and 12 Bronze, and initiated coverage of four new strategies.
- Fixed interest funds are often treated as though they all have the same income generation and defensive properties. In reality, bond funds come in many different flavours. Each can potentially play a distinct and important role in an investment portfolio.
- Absolute return fixed income funds have been catching headlines and attention. It would be easy to dismiss these as the latest investment fad, but some actually have merit if used in the right way. The investor’s time horizon plays a big role in determining how useful these funds can be.
- Persistently low interest rates on global government bonds have wreaked havoc on many fund managers and their investment strategies, because execution in such an environment requires an especially delicate balance of risks. Fund managers have pursued a variety of strategies to cope, revealing distinct things about their styles and how their funds should be used.
- Fees have an especially big impact on fund performance in the fixed interest sector because the range of returns targeted and offered by fixed interest funds is relatively small. Fees can therefore take a big bite out of what the investor pockets, making fee assessment an especially important consideration in fund evaluation and selection.
A large number of Australian fixed interest fund managers cluster around the index while charging a premium, presenting a compelling case on cost grounds for using a passive option for Australian fixed interest exposure.