Fixed interest a fine balance for advisers
The most difficult thing about investment advice at the moment is the fixed interest component of a client’s portfolio, says Steve Barton, of financial planners Pascoe Barton.
Monday, September 30th 2013, 5:33PM
by Susan Edmunds
He said there were signs that clients were starting to look for more growth than income, but a balanced portfolio would still require 50% fixed interest.
Global fixed interest products were outperforming New Zealand fixed interest in bond funds, he said, even though global funds were longer duration, which usually was not what investors wanted in a rising interest rate environment.
Barton said: “We’ve reduced our exposure to bond funds and increased our exposure to term deposits that are short duration because we don’t want to lose capital.”
That was a complete reversal of the approach that would have been taken as recently as a year ago, he said.
“Depending on how you manage the portfolios, you’ve got to be on top of fixed interest. In a balanced portfolio, 50% has to be fixed interest but you’re not getting much return on that part and there’s potential for reasonable losses out of it.”
There was also a mismatch in client perceptions of fixed interest, he said. “A brand new client would probably perceive fixed interest as like interest from the bank in that it is fixed, unlike bonds where they move and fall on the capital value and the coupon.”
He said clients were more averse to losing money on fixed interest than on shares.
“There’s a perception that fixed interest is more stable but you’re better rewarded for those with a higher weighting to equities.It's been like that for several quarters now.”
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