'Doubling risk’ with bonds a danger to SMSFs
A significant increase in the exposure of SMSFs to corporate bonds could actually be adding more equity risk to portfolios, AMP Capital has warned.
AMP Capital head of macro Ilan Dekell said while bonds are often classified as a defence asset, SMSFs need to recognise that by investing in corporate bonds they are adding other types of risks into the portfolio such as default risk and equity type risk.
"Therefore you should recognise that if you’re adding corporate bonds in then you might want to reduce your equity risk elsewhere, so there is a trade-off," said Mr Dekell.
If an investor already believes they have the right amount of equity risk before investing in corporate bonds and they want to move into corporate bonds, he said, they need to offset that risk somewhere else.
"You don’t want to be doubling up on your risks by adding corporate bonds on top of the equity risk you already had, thinking you’re putting defence assets into the portfolio.
"If you are looking for defence, government bonds are your best source of defence, particularly over a short-term time horizon."
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.