SMSFs cautioned against heavy exposure to long-duration bonds
SMSF investors have been urged to reduce their allocation to long-duration bonds with a shift away from quantitative easing in the global economy likely to lead to bouts of volatility.
Speaking to SMSF Adviser, Henderson Maxwell general manager Tony Davison said while some types of bonds still offer value to SMSF investors, with interest rates heading upwards, SMSFs should avoid long dated fixed interest products that are sensitive to interest rates.
“I think there’s some potential for some unsettling moves over the next few years in the fixed income market as the economy adjusts from quantitative easing towards a more traditional state,” he said.
“Where things have been tweaked in fixed income land, they’re likely to at least experience bouts of volatility, or even declines for a while.”
Mr Henderson said there remains a lot of value in alternative bond funds, however, such as absolute return bond funds, but recommends that advisers stick to a short duration for this part of the cycle.
“I wouldn’t have a heavier allocation to bonds if I was a growth investor of greater than 15 or 20 per cent at the moment though,” he said.
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.