Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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News & Commentary
Vanguard welcomes greater investor choice through ASX AQUA Rules change 10 Jan 12
Vanguard welcomes yesterday’s amendments to the rules for the AQUA Platform by the Australian Securities Exchange (ASX) as a win for investor choice. The new rules allow fixed interest exchange traded funds (ETFs) to be quoted for trading.
Vanguard has long advocated diversification in and within asset holdings in investment portfolios and supports the provision of choice to investors to be able to access a fuller suite of asset classes via exchange traded funds.
Fixed income products can be a defensive investment tool that provides diversification by offering returns that are less volatile than equities and have a lower correlation to equity market returns. They can also be a good source of income in a portfolio.
‘Quality fixed income products have lower volatility when compared to equities and perform an important role in reducing the overall variability of portfolio returns. Also particularly relevant to the prevailing market conditions, fixed income investing provides a source of reliable income during volatile times’, said Robyn Laidlaw, Head of Product Management & Development at Vanguard.
Using index ETFs or traditional index funds to access fixed income provides investors with a diversified portfolio of bonds with the benefits of liquidity and transparency. Research tells us that a vast majority of actively managed fixed income funds fail to beat the index consistently over short and longer time periods and the relatively narrow range of returns between the best and worst performers in this asset class magnifies the benefits of a low-cost strategy.
‘Yesterday’s decision will pave the way for Australian investors and their advisers to use fixed income ETFs to diversify their portfolio as easily as trading direct shares, and will offer an easy, low cost tool for augmenting portfolios which may be overweight in equities or lacking diversification due to a build up of cash’, said Ms Laidlaw.
The changes to the rules governing ETFs will mean that investors will be able to access fixed income in the same manner as equity ETFs which have been available to Australian investors for the past 10 years. Investors have been able to access diversified fixed income portfolios through unlisted funds however the rule changes will now mean that investors, including direct and institutional investors and advisers, have more choice.
Today the global fixed income market is approximately $80 trillion which is almost twice as big as the global equities market.
