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13 May 22 Insight

Defensive fixed income checklist

What should you look for in a defensive fixed income manager? We’ve put together a checklist to aid in your decision.
 

Look beyond labels – not all fixed income is defensive

✓ Positive absolute returns: Targets positive returns irrespective of market direction, particularly in adverse market environments.

✓ Tight volatility control: Maintains low performance volatility through varied market environments.

✓ Minimal correlation to equities: Maintains reliably low correlation to equities, particularly when equity markets incur losses.

✓ Highly liquid: Maintains reliable liquidity, particularly in periods of market stress, so investors can readily access capital when needed.
 

Two added bonuses that are relevant for defensive investments would be:

✓ Inflation protection: A long term risk of holding cash or low yielding government bonds is erosion of purchasing power if the interest earned doesn’t keep up with inflation.

✓ Tail risk protection: While low correlation to equity markets is a good starting point for defensive investments, an even better next step is the inclusion of strategies that explicitly profit from tail risks.

 

This material has been prepared by Fidante Partners Limited ABN 94 002 835 592 AFSL 234668 (Fidante), a member of the Challenger Limited group of companies (Challenger Group). The information in this material is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. Neither of Fidante nor any of its respective related bodies corporate, associates and employees, shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of the material or otherwise in connection with the material. It is intended to provide general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. Any projections are based on assumptions which we believe are reasonable but are subject to change and should not be relied upon. Past performance is not a reliable indicator of future performance. Fidante, its related bodies corporate, its directors and employees and associates of each may receive remuneration in respect of the financial services provided by Fidante.