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Correct fixed income assessment critical

fixed income performance

A fixed income specialist has advised individuals to closely examine performance measures of bond funds in the current low interest rate environment.

Assessing the performance of bond allocations properly is more important than ever due to the current low interest rate environment with maintaining a focus on forecast future returns critical, a fixed income specialist has said.

“I would suggest if you’ve got [allocations to] fixed income funds, or any other sort of funds, that you check your fund performance and the fees and the future expected returns,” Fixed Income News Australia editorial director Elizabeth Moran advised.

“You might have invested based on historic performance but future performance is much more important and one of the benefits of the fixed income asset class is that, as bonds have a maturity date, fixed income funds can project future income,” she added.

“[This is] a yield to maturity and that assumes all the investments that are made are held to maturity.”

According to Moran this measure is currently not boding well for some fixed income vehicles and investor should take note of this.

“That particular measure is coming right off on some of the ETFs (exchange traded funds), particularly those with significant allocations to government bonds,” she revealed.

“I’ve seen some as low as 0.4 of a per cent yield to maturity so you really want to watch out for that.”

Further, Moran told investors to be wary of fixed income running yields and how attractive some of them may appear to be.

“In essence, that’s your expected income for the next 12 months. So, some funds might have very good expected income for the next 12 months, and you might invest on that basis, but it’s not necessarily going to be a set and forget [measure] because the yield to maturity might be so much lower,” she explained.

“So you might [want to employ] a strategy of investing for a short period to pick up yield and then look to [allocate] your funds somewhere else,” she suggested.

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