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[GRTV] Getting good returns from fixed interest

My Fiduciary principal Chris Douglas reveals how he is investing in fixed income in this low interest rate environment and gives his views on the great KiwiSaver shakeout.

Wednesday, 9 June 2021

by Matthew Martin

In this episode of GRTV, Philip Macalister talks to My Fiduciary principal Chris Douglas about the great KiwiSaver shakeout and how to invest in a world of low interest rates.

Douglas says the government did a "pretty solid job" regarding the recent changes to default KiwiSaver providers. 

"I think the outcome they got was what they indicated to the market," says Douglas.

"I was anticipating potentially one of the banks might miss out, I was surprised ANZ missed out...they have done a pretty solid job I think for investors over time but they have always been pretty expensive compared to others as well."

Does Douglas think the focus on fees was correct?

"I do. There's a lot of rhetoric around this at the moment...but you have got to remember that the default review process is about a cohort of unengaged KiwiSaver investors.

"We do need to think about how they are investing, how much they are paying...then there are a few things we can do to improve their chances of getting the optimal outcome in their retirement...and fees is one major indicator."

Macalister goes on to ask Douglas about how to invest in a world of low interest rates and how portfolios could be structured.

"We believe there are some fairly large risks for investors who have got a portfolio majority made up of fixed interest investments.

"If you think about the last 30 years we've had a huge tailwind for investors in that space of declining interest rates and [it's] also an asset class that's provided stability or a solid positive return when equity markets have fallen - so downside protection as well."

Douglas gives some examples of relatively straightforward things you can do with your investments such as increasing cash exposure within your fixed interest allocation and short duration exposure to high-quality credit.

The pair also chat about the world of private credit as it becomes more available to people with a growing range of options coming to the market.

And then there's gold.

Douglas says no one in their five-member investment committee has invested in gold so much before "...but we certainly believe there's a role it can play in a portfolio".

"The biggest challenge you have [with gold] is that it doesn't give you an income. But it is a store of value and it has provided an inflation hedge over time...and it can be a US dollar hedge as well."

Douglas goes on to share his thoughts on cryptocurrencies and investment strategies that provide "inherent downside protection".

In conclusion, Douglas gives us a quick lesson on insurance and securities - otherwise known as catastrophe bonds - and how they can make up part of your portfolio.

"You are going out there and you are being paid a premium to take on the risk around a payout that happens when a hurricane or cyclone hits the US, for example.

"There's a lot of institutional money that invests into this space, much less so in the retail and adviser world."

Comments from our readers

On 28 May 2021 at 11:40 am nzeverydayinvestor said:
fascinating to hear more discussions occurring with Gold. I wonder when the the digital version of this (Bitcoin) can be discussed in this context, as increasingly there are ways to derive income from this (albeit in much riskier ways which could offset the benefits of this hedge somewhat I suppose). Interesting

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