Wednesday 16 June 2021 by Jonathan Sheridan Tidy-up-your-portfolio-900 General

EOFY - time to tidy up your portfolio

At certain points throughout the year, it becomes timely to run one’s eye over the portfolio and make sure it is still fit for purpose.

The end of the financial year is ideal as there is a hard milestone for tax purposes and also for valuations, so it can give a well-timed prod to have a closer look at what we are holding and maybe make some of those decisions that have been put off to date.

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:


Do you have the desired Fixed/Floating/inflation linked split in the bond types?

As a reminder, we recommend a relatively even split across the three types, noting that inflation linked bonds are typically harder to find, and usually being infrastructure also tend to be higher rated, lower yielding strong investment grade credits, and as such may form a smaller allocation now than historically.


Does the portfolio have 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 recent sales or calls may have reduced the amount allocated.

Maturity profile

With potential rising inflation looming, this may be a good time to reassess the allocation to the various maturities in the portfolio. Historically rising inflation has been followed by higher rates, which would result in lower prices on longer duration (i.e. fixed rate) bonds.

This might result in a switch from longer dated fixed rate bonds to shorter maturities which are less affected by changes in yields, or to increase the allocation to floating rate bonds which will benefit from increases in short term market rates.


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 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 with term deposit rates so low and allocations to cash in SMSF’s remaining well above 20%, the drag on returns is now more significant than ever.

A decision to deploy cash pre-year end to set the portfolio up for the new financial year in good shape 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.