Amy Xie Patrick, Pendal’s head of income strategies:
Two-year yields in Australia have risen well over 200 basis points, even just in the last year.
One year ago, to invest in risk-free bonds in Australia, you were getting paid virtually nothing. And now you’re getting paid nearly 2.5%.
For most income funds in Australia, within the fixed interest asset class, our income targets are relatively modest, around 2% to 3%. You can get most of the way there now without even having to take credit risk, or equity risk.
But if you don’t have the flexibility within your portfolios to take advantage of this higher-yield environment, then this is a really large prize that you are being forced to forego in this environment.
The reason we highlight this today, on the podcast, is simply to say to investors that you need to look at what kind of income fund you’re getting into.
Is it a buy-and-hold, steady as she goes, let’s not do much about it, kind of income fund?
Or has your income fund actually been incredibly active to insulate you against the rising interest rate risks, the rising macro risks, that have occurred over the last 6-to-12 months?
The latter is definitely the one positioned with more flexibility, and more dry powder, to take advantage of the higher yields that we have today.
Amy is Pendal’s Head of Income Strategies. She has extensive experience and expertise in emerging markets, global high yield and investment grade credit and holds an honours degree in economics from Cambridge University.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2021 the team won Lonsec’s Active Fixed Income Fund of the Year Award. In 2020 they won the Australian Fixed Interest category in the Zenith awards.
The team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
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