On the defensive

Faced with volatile sharemarkets and uncertain economic conditions, many investors are playing it safe

- DARREN SNYDER

Fixed-income managed funds, including exchange-traded funds (ETFs), attracted strong attention in 2019 as investors poured into the defensive assets – and it delivered good returns. But do these funds stack up in the same way for 2020?

More than $3.7 billion of investors’ money flowed into Australian fixed-income ETFs in 2019. This is the first time these products have ranked number one for funds flowing into ETFs in Australia in a calendar year, meaning more money was invested there than in international equity ETFs ($3.6 billion) and Australian equity ETFs ($3 billion).

Alex Vynokur, chief executive of ETF provider BetaShares, says investors are turning to ETFs and fixed income when markets and other economic factors are uncertain.

“In an unpredictable and low-interest-rate environment, we’re finding that many investors are seeking out exposures that offer defensive benefits and diversification,” says Vynokur. “Five of the top 10 products by inflows [in 2019] were cash and fixed-income products.”

Although the Australian bond market produced negative returns in three of the final four months of 2019, on average it returned 8% for super fund members over the year, according to the SelectingSuper Australian Fixed Interest Index (see Databank, page 87). The international version of the index returned 7%. Both results were more than double their three-year and five-year averages.

Depending on how your super fund invests, fixed income could make up 10% to 30% of your portfolio, so it’s a significant player. If you’re in a self-managed super fund (SMSF), research tells us fixed income makes up less than 10%.

What’s in store