Australian investors are significantly underweight in bonds compared to their global counterparts, despite the current strength of fixed-income markets. According to Jonathan Sheridan, a director at FIIG Securities, Australian portfolios typically allocate less than 10 per cent to fixed income, contrasting sharply with comparable markets like Canada and the UK, where allocations range from 30 to 40 per cent. Sheridan suggests this underweighting leaves the majority of Australian portfolios heavily exposed to riskier assets.
Sheridan argues that the global trend toward higher bond allocations presents a signal that Australia is overlooking. Bond yields are currently at multi-decade highs, offering both income and capital protection at a time when geopolitical risks are increasing and equity markets are trading at record highs. FIIG Securities is a fixed income specialist providing investors access to the wholesale bond and fixed income market.
He notes the bond market has shifted from a 2-3 per cent yield environment to one where high-quality, liquid, investment-grade bonds offer 5-6 per cent. This transformation, according to Sheridan, creates a more compelling role for bonds within a portfolio, particularly when returns are actively managed. He contrasts direct bond investing with the increasing interest in private credit, asserting that traditional bonds maintain advantages in transparency, liquidity, and risk management.
Sheridan also points out that bond returns are typically front-loaded, delivering stronger performance in the initial years. FIIG aims to actively capture returns early in a bond’s term and then transition into new offerings. FIIG’s active strategy has historically yielded around 9 per cent annually, though past performance does not guarantee future results. FIIG Securities provides investors access to the wholesale bond and fixed income market.
