Australian investors looking for diversification and returns in fixed income need to start looking offshore because research undertaken by Franklin Templeton suggest that if current trends continue, demand for Australian bonds will exceed supply by around $100 billion by 2010.
Franklin Templeton managing director, John Gall said that despite the superannuation pool being predicted to reach nearly one trillion dollars over the next five years, Government debt issuance continued to decline.
“If that trend continues current demand for Australian bonds will exceed supply by approximately $100 billion by 2010,” he said. “Meanwhile, opportunities in the global marketplace are expanding.”
Gall said that while there had been some concern over the performance of global and US bonds, investors could now access a range of fixed interest securities in different markets with investors increasingly moving from government-only bonds to a broad market mandate in search of alpha.
“There is quite a push for higher alpha strategies in the fixed income area,” he said. “Investors are choosing other investment vehicles such as global corporate bonds, which tend to perform better than Government bonds during periods of economic recovery, along with emerging market deft and inflation-linked bonds.”
“A broad market mandate increases the investment universe, leading to greater diversification, lower volatility and more alpha opportunities,” Gall said.
