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FMA offers investors insight into bonds

More retail investors should consider how they use bonds as part of their portfolios, the Financial Markets Authority says.

Monday, September 7th 2020, 5:00AM 4 Comments

Gillian Boyes

It has released an investor guide to bonds which it said was designed to help novice investors find out more about the asset class.

Only 6% of New Zealanders have a direct bond investment.

“New Zealanders are taking a greater interest in their finances due to Covid-19 and with low interest rates, many are looking at the sharemarket and managed funds. But retail investors should still try to build a portfolio with assets of varying risks and returns and high-grade bonds can be a useful defensive investment,” said Gillian Boyes, investor capability manager at the FMA.

“Globally, the bond market is bigger than the sharemarket, yet relatively few New Zealanders invest in bonds directly.”

The FMA’s 2020 Investor Confidence Survey found just 6% of surveyed New Zealanders held government or corporate bonds directly, compared to 3% in 2019 and 10% in 2018. In contrast, 30% had term deposits and 20% had shares. However, most New Zealanders will indirectly hold bonds through their KiwiSaver. For example, even KiwiSaver growth funds could hold between 10-37% in fixed income assets, which include bonds.

“Bonds pay regular interest, can be traded during their term, and pay back capital on maturity,” Boyes said. “High-grade bonds are generally a predictable investment, so they’re ideal for anyone who is investing for a relatively short time or looking to balance their portfolio with lower-risk investments.”

The guide said bonds could be bought through some financial advisers. The FMA suggested that investors could ask a financial adviser to guide them through questions such as the credit rating of a particular organisation issuing a bond, and why that might matter.

“Ratings issued by financial advisers could serve as a useful guide, but they should also be treated with caution as these ratings may not be from recognised credit rating agencies.”

Tags: bonds FMA investment

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Comments from our readers

On 7 September 2020 at 7:02 am MPT Heretic said:
Perhaps the financial adviser could also guide them through the liquidity and mark to market risks inherent in trying to sell bonds in the small and illiquid NZ market prior to maturity. To suggest they are ideal investments for a relatively short time is potentially very misleading, especially for retail investors who are used to fixed rate term deposits and with no appreciation of duration risk
On 7 September 2020 at 8:30 am Pragmatic said:
Note to Gillian Boyes: either retract your statement or note that this is a personal statement. Otherwise, I'm not sure when the FMA was charged with providing investment advice.
On 7 September 2020 at 4:32 pm LNF said:
Incredible
A search of the FSPR came up with "Your search returned no results." for Gillian Boyes
One rule for "them" and one rule for "us"

On 8 September 2020 at 7:58 am Pragmatic said:
As it’s been 24 hours since the article appeared, it may be useful to help Ms Boyes understand the conflicted statement:

“Boyes said. “High-grade bonds are generally a predictable investment, so they’re ideal for anyone who is investing for a relatively short time or looking to balance their portfolio with lower-risk investments.”

My suggestion is for investors to take Ms Boyes statement “to the bank” as they now have FMA confirmation that high grade bonds are great for low risk portfolios. LOL

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