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Wednesday 19 June 2024 by Jonathan Sheridan

EOFY 2024 - Time to Tidy Up Your Portfolio

It’s important for investors to periodically review their portfolios and make sure it is still fit for purpose and behaving as the investor intends.

Coming up to the close of the financial year or soon after it has closed off is an ideal time to review your portfolio as there is a hard milestone for tax purposes and also for valuations. Together, these often provide a prod to have a closer look at allocations and to make decisions that have previously been put off.

Bond allocations

The Portfolio Performance Report (“PPR” - available on MyFIIG or from your Relationship Manager) will show you the split of the various allocations across the portfolio:

A key question is if the portfolio still meets the desired fixed/floating/inflation-linked bond type split?

As a reminder, we recommend a relatively even split across the three types, with under- or overweighting to suit the economic environment a preferred option rather than allocating everything to one or the other. We note that inflation-linked bonds are typically harder to source. As they are typically infrastructure exposures, they also tend to be higher rated, strong investment grade credits, and as such we consider them to be a core holding, especially with current market uncertainty.


Another question is if the current portfolio has the desired allocation to non-AUD bonds? Movements in FX rates for example may have changed the mix of the portfolio, potentially allowing for either a reduction or a topping up of the portion of the portfolio denominated in non-AUD currencies (usually USD or GBP). Recent redemptions or maturities in the non-AUD portion of the portfolio may also have reduced the exposure.

Maturity profile

Inflation is proving stickier than previously forecast, so this may be a good time to reassess the allocation to the various maturities in the portfolio. Market interest rates have been volatile over the last couple of months, which has resulted in changing prices on longer duration (i.e. fixed rate) bonds. Importantly, these bonds continue to pay a steady income stream, irrespective of their daily valuation.

It seems the top of the cash rate cycle has been reached, with the timing of first cuts the current debate. This might result in a switch to longer dated fixed rate bonds from shorter maturities which are less affected by changes in yields, or to decrease the allocation to floating rate bonds which will lower income if short term market rates decline. Longer dated fixed rate bonds are still available at attractive yields, much higher than in recent years, particularly from investment grade credits.


For wholesale clients who are able to see credit ratings, the split between investment grade and sub-investment grade or high yield is likely to be a key metric for the portfolio.

Typically associated with higher yields, lower rated bonds should be held in smaller parcel sizes to maximise diversification and minimise the impact on the portfolio of any one bond not performing as expected.

Position sizes

Following on from this, a review of the sizes of individual positions is always useful, to make sure that a single bond, issuer or sector is not too heavily represented in the portfolio.

As a rule of thumb, we are comfortable with individual investment grade positions being up to 10% of the portfolio and recommend that individual sub-investment grade positions be no more than 5%.

Clearly exceptions will exist, for example where the bond in question is issued by a company or sector that the investor is very familiar with, allowing a greater exposure due to the better appreciation of the risks.

Culling losers and long tails

Small positions which do not materially contribute to the makeup of the portfolio often provide a distraction, particularly if they are in distressed positions. A formal review at this time of year is often useful to recommit to the strategy – either hold for the decent probability of a recovery or sell and realise the loss, moving on to a more productive position.

Holding cash

Cash in my opinion is best described as an option on a future investment. However, term deposit rates, while now much higher than in recent history, are still lower than can be achieved in investment grade bonds. With allocations to cash in SMSF’s remaining high, the drag on returns is now more significant than ever given yields that can be achieved in these higher rated bonds.

A decision to deploy cash shortly after the year-end review to set the portfolio up for the new financial year allows the rebalancing described above.

The flip side to this is realising those small and/or non-performing positions can replenish the coffers awaiting the next good opportunity. In the few weeks post the 30th of June we usually see new issuance when companies have their results reviewed or formally audited, which gives investors the most up-to-date picture of the company and confidence to invest in new issues that come to market.

If you need a review of the portfolio, please get in touch with your Relationship Manager who can talk you through the PPR or run a Portfolio Risk Review to show you where any potential risk metrics are higher than our usual recommendations.