The current environment for fixed income
The Premier Fixed Income Fund is a diversified fixed income fund that aims to deliver the best possible investment returns across the market cycle. This is achieved through managing its asset allocation amongst various debt asset classes, managing the fund’s duration and the fund’s government and non-government exposures.
In the current economic environment, we expect the RBA to begin raising the cash rate towards more normal levels. In this environment fixed rate investments are prone to capital losses, but don’t forget
markets are pre-emptive and begin to discount these moves prior to them actually being delivered.
With this in mind, we have anticipated the fund’s credit exposure will be the main driver of returns in 2009. The fund’s high yield exposure has significantly outperformed other debt asset classes in the current year to date. Our allocation to this sector has ranged between 10% and 18%, and currently sits at 10%.
Additionally, the fund is currently overweight to higher rated credit. In this bucket we include semi-government, government guaranteed and non-guaranteed bank paper which have all outperformed government bonds.
