Is it time to relook at fixed interest funds? It feels like we need somewhere safe to hide our money but as interest rates rise bond prices go down. What about actively managed funds? Invest in fixed interest but have someone look after us. We take a look.
In volatile times we tend to move assets into safe havens and normally that means fixed interest bond funds. But the yields on bond have been so low and the returns over the last 3 years so dismal that this sector of the market has been a place to avoid. But is that now changing? We are at long last starting to see rates move up so at some point bonds might become attractive. The problem is that as rates go up bond prices go down so until those rates are high enough to interest us a bond fund is still a tough place. But what about if we look at actively managed funds, someone to look out for us. As readers of the Accument blog will know I am generally sceptical of active managers. The data suggests that very few add value over the long term. But in this case I do think it makes sense. An indexed passive bond fund will simply lose value as rates rise. An actively managed one may also lose money depending on how it is managed. But with the right manager you could do alright (especially compared to equities).
There are 6 actively managed low risk income funds listed on the ASX. Two are quite new so I am not going to spend too much time on them; DHOF is the Daintree Hybrids fund, and GCAP is the Bentham Capital Securities Fund which also invests (amongst other things) in Hybrids.
So that leaves 4 funds, BNDS which is an Australian bond fund, EBND, an emerging markets bond fund, an absolute return fund called XARO and a hybrid fund HBRD. The hybrid fund is not strictly a fixed income fund and has a number of risks which are important and equity like. But the volatility at 7.28% (my measure of risk) is low enough for me to include it in this bunch. In fact the volatility,risk, of EBND is quite a bit higher (8.9%) and probably means it is not suitable.
In fact when you look at these funds only one I think is worth considering right now and that is XARO, the absolute return fund. The returns have not been stellar but compared to other funds with similar risk levels this fund has done really well.
I have put a link to an AFR article with a similar tone below.