Launched on the Australian Stock Exchange today, DIFF is an actively-managed diversified portfolio of liquid, mainly investment-grade securities, giving investors the opportunity to access assets such as senior debt and subordinated bank debt, which are generally more difficult to access directly.

DIFF is a unit class of the Perpetual Diversified Income Fund (DIF), a managed fund with $2.5 billion in funds under management^[1]. Over a 20-year history, DIF has delivered a net return above core inflation in 16 financial years to June 30, 2025. Further, the Fund’s gross total return has exceeded the Bloomberg AusBond Bank Bill index over rolling 3-year periods throughout every month since 2011. The Fund is managed by Perpetual’s Head of Credit and Fixed Income Vivek Prabhu, who has more than 20 years of investing experience. Perpetual’s credit and fixed income team comprises eight investment professionals managing more than $8 billion in funds under management.

Chief Executive, Perpetual Asset Management Australia, Amanda Gillespie said: “It’s important we continue to evolve our product suite, and this is another great example of how we can find opportunities that meet the changing needs of investors.”

Perpetual Head of Credit and Fixed Income, Vivek Prabhu, added: “Fixed income assets such as cash, bonds and credit offer defensive, lower-risk properties than equities and can help investors generate income, diversify their portfolios, preserve capital and hedge against economic conditions, which in today’s uncertain macroeconomic environment is a crucial element of an investment portfolio.

“With elevated equity valuations, uncertain growth outlooks and rising volatility reflecting challenging risk outlook for equities, together with interest rates trending downwards, credit and fixed income investments can offer a safer alternative with reduced volatility and better capital preservation than equities, while at the same time generating strong returns through different market cycles.”

The Fund aims to provide regular income and consistent returns above the Bloomberg AusBond Bank Bill Index (before fees and taxes) over rolling three-year periods by investing in a diverse range of income generating assets and will make distribution payments quarterly.

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[1] As at 30 June 2025

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The announcement reflects the planned retirement of Michael Korber, who will step down from this leadership position after more than 40 years in the industry and more than 20 years at Perpetual.

Vivek, who is currently Perpetual’s Head of Fixed Income, will commence in the leadership role from 1 July 2025. He has more than 30 years industry experience and has been with Perpetual for over 20 years, working closely with Michael and the broader team. He has a deep understanding of the team’s investment philosophy, process and approach, and has a proven track record as Portfolio Manager for the team’s income strategies, which collectively have more than $3.8 billion in funds under management. Vivek will continue in his role as Portfolio Manager for the Perpetual Diversified Income Fund, Perpetual Credit Income Fund and Perpetual ESG Credit Income Fund.

While Vivek will assume the Head of Credit & Fixed Income leadership role from 1 July, Michael will continue in his current Portfolio Manager role for a period of up to 12 months. Greg Stock, Perpetual’s current Head of Credit Research and Senior Portfolio Manager who has also been with the business for over 20 years, has been appointed Deputy Portfolio Manager for the Perpetual Credit Income Trust and Perpetual Pure Credit Alpha Fund and will work closely with Michael during the transition period.

Chief Executive, Perpetual Asset Management Australia, Amanda Gillespie said: “Michael’s contribution, not only as a leader in our business but as one Australia’s most respected credit and fixed income investors, has been enormous. We are incredibly thankful for the commitment and dedication he has shown to providing quality client outcomes and building such a strong and talented team throughout his tenure at Perpetual.

“Importantly, Perpetual has a long and proud history of developing and promoting talent from within, and our focus on succession planning ensures we have the strength and depth for this transition.

“Vivek is a highly respected Portfolio Manager and his natural leadership skills, commitment to fostering strong and collaborative teams, coupled with his dedication to providing quality investment outcomes, ensures we will continue to deliver for our clients.”

Perpetual’s Credit & Fixed Income team comprises of eight investment professionals managing more than $8 billion in funds under management.

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US fixed income is looking expensive and investors should shift their focus to finding better value in Australian and European credit, says Perpetual portfolio manager Vivek Prabhu.

Credit spreads – the additional return over government bonds that compensate investors for taking on risk – have reached historic lows in the US as a strong economy and the prospect of falling interest rates drive demand for higher yields.

But despite the benign economic conditions, Prabhu says the market is overlooking important risks, led by uncertainty about the upcoming US election and the potential for inflationary policies from both candidates.

“I haven’t held any US banks in the portfolio for about 18 months now,” says Prabhu, who manages the Perpetual Diversified Income Fund, an actively-managed, diversified portfolio of floating-rate debt investments.

“That is not driven by any concerns around credit fundamentals – it’s just that I’m finding better risk-return propositions elsewhere.”

US election key to outlook

Prabhu says the US election outcome will likely dictate the path of both credit and equity markets over the coming months.

“A Trump clean sweep of the House and the Senate will likely be inflationary with tax cuts and tariffs. That means interest rates stay higher for longer, which is a headwind for risk assets.

“Having said that, if the Democrats get in, they also have some big spending policies.

“Deadlock might be the best outcome for markets – with neither side having a clean sweep of the Senate and the House.”

Opportunities in Australian mortgages

US uncertainty and tight valuations mean there are better options available in other markets, led by Australian residential mortgage-backed securities and European banks, says Prabhu.

Australian residential mortgage-backed securities (or RMBS) meet his definition of a high-quality asset.

By pooling together thousands of home loans, RMBS offer a way to capture returns from Australians’ love of housing without lending directly to individual borrowers.

“I’m rotating into the high-quality end of the spectrum at this part of the credit and economic cycle. That’s where you’re currently being paid for risk.

“You’re not being paid enough for taking risk at the riskier end of the spectrum.

“RMBS have a very good track record in terms of performing. Even during the GFC and the pandemic, there weren’t any losses on Aussie-rated RMBS.

“It’s got a very good performance history, and the current conditions are supportive – people are able to service their mortgages because unemployment is very low, and interest rates are close to the peak of the cycle and likely to fall next year.”

Unusually strong property prices on the back of high immigration are also bolstering the investment case, says Prabhu.

“That means the collateral backing for these bonds, in terms of homeowners’ equity, is supportive as well.”

European banks attractive

Another attractive credit market at the moment is European banks, which are well regulated and look in much stronger shape than in the past, Prabhu says.

Regulators increasing bank capital and liquidity requirements in the wake of the GFC and a normalisation of interest rates over the last couple of years have contributed to improved bank profitability.

“I’ve got close to 30 per cent of my portfolio in foreign bonds, largely allocated to European credits which are still offering good value compared to the expensive US market.”

Bond market rollercoaster

Prabhu says fixed income investors should stay the course and not read too much into this year’s bond market gyrations.

“The whole year has been a bit of a rollercoaster in bond yields,” he says.

“At the start of the year, markets were pricing seven Fed rate cuts. By February it was four, and by March only one or two.

“Following the initial rate cut of 50 basis points by the Fed in mid-September, another 25-50bps of easing seems likely by the end of 2024.

“Australian and US bond yields have risen by about 70 basis points since then, returning to levels last seen six months ago in Australia and three months ago in the US.”

The upshot for investors? Don’t get too caught up in short term moves driven by hedge funds and traders, Prabhu argues.

“It feels like the market likes catching on to and then overreacting to whatever the current narrative is.

“It reads into every little nuance and has these wild swings which get traction for about a month until we find the next new theme, and then we go the other way.

“These gyrations are typical during inflexion points in the interest rate cycle.

“They provide opportunity for active managers like us to generate return as yields move from one extreme to the other while markets try to price the ultimate speed and magnitude of the rate-cutting cycle.”

By Vivek Prabhu, head of fixed income.

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