High-net-worth investors bullish on corporate bonds
The number of high-net-worth investors holding bonds is predicted to almost double in the next 12 months, as retail investors including SMSFs look for new forms of income, according to a recent report.
A joint report on corporate bonds by Deloitte Access Economics and FIIG Securities indicates that 16 per cent of Australian high-net-worth individuals are invested in direct corporate bonds, and 37 per cent of all bond holders are planning to reinvest next year.
The report surveyed more than 700 high-net-worth investors with over $2 million in investable assets.
The report showed that 15 per cent of investors who are not currently invested in bonds intend to invest for the first time next year.
The momentum in the corporate bond market, the report said, was being driven by the search for good returns based on risk profiles, capital preservation and a reliable income stream.
The report also found that concerns around future policy changes to superannuation and taxation is driving the trend towards corporate bonds, as investors believe there is lower political risk with corporate bonds.
FIIG director of education and research Elizabeth Moran said the allocation to corporate bonds tends to increase with age.
“Those aged over 55 had allocations of 22 per cent, while less than 55 years had 3-4 per cent. This is in line with best practice which suggests higher allocations to defensive assets as investor’s age,” said Ms Moran.
“Older investors don’t have the time to recoup significant losses from growth assets such as shares and property.”
These investors she said are more likely to be in retirement phase and looking to generate an income stream.
“Interest on corporate bonds is either half yearly or quarterly and depends on when the bond is issued. Payments can be made on any business day, making them attractive to SMSFs trying to replicate an income stream.”
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.