By Simon Michell
Cash is no longer king, it’s a drag on portfolio earnings. Advisers seeking better returns for clients wanting income without the need to oversee individual investments, can now access Australia’s first bond IMA
Cash continues to be a safe haven for investors looking to de-risk their investment portfolio. However, with interest rates having touched historic lows in 2017, this allocation can be a drag on overall portfolio performance.
Two years ago, we noticed a significant gap in the market for investors, who were overweight cash and dissatisfied with historically low interest rates. In response, we developed the Managed Income Portfolio Service (MIPS), combining our DirectBond Service with professional investment management by an experienced team of fixed income specialists.
MIPS is available to wholesale and sophisticated investors, catering to the rising demand for corporate bonds. Prior to its launch, advisers could not obtain direct, transparent and diverse exposure to the Australian corporate bond market for their clients without substantial capital.
MIPS for advisers
MIPS provides an alternative for advisers looking to invest clients who are overweight in cash, but wish to retain confidence with predictable income to support their lifestyle. It offers the benefit of institutional pricing with a flat management fee, and advisers can enjoy investment transparency with data feeds that can be integrated with internal reporting systems.
Advisers can select a single program, or invest across a number of programs in line with their client’s needs. Over time they can make adjustments should the client’s needs change, or as they move beyond accumulation into wealth preservation phase.
For time poor advisers, expert fixed income management has been a significant advantage given that tasks like monitoring markets, credit research, bond selection and transacting can be time consuming. This is especially relevant when a statement of advice is required for each change to the portfolio, but not for an IMA mandate.
Liquidity is provided via a simple redemption request with funds available within 14 days for a partial redemption, or 30 days for a full redemption.
The MIPS Core Income program, which only invests in senior bonds, has achieved a net return of 3.99% for the 12 months to 31 May 2017. For investors looking to access a wider universe of corporate bonds, the Income Plus program can invest in high yield bonds, enabling higher overall returns. This program has achieved a net return of 5.15% for the 12 months to 31 May 2017.
These returns compare well against the average one year term deposit rate of 2.57% over the same period. The MIPS IMAs have outperformed the broader managed Australian fixed interest funds with only three out of 42 other funds achieving net returns above 4% in the last year1.
Benefits and programs
MIPS offers four investment programs – Conservative Income, Core Income, Income Plus and Inflation Linked. Each program is tailored to different risk appetites and investment goals. Investors can now be exposed to high yield, rated and unrated bonds, where the maturity date protection and income is retained.
Combining a directly owned portfolio with a diverse range of holdings, MIPS also provides investors with exposure to individual bonds for as low as $10,000 per bond, as well as predictable income, investment control, portfolio stability, and exposure reporting and valuation. Investors benefit from exposure to a portfolio of up to 25 corporate bonds for a $250,000 investment; previously institutional corporate bonds were only available in minimum $500,000 parcels.
More information on corporate bonds is available by contacting our adviser services on 1800 01 01 81.