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.