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Greg Stock: Why Australian fixed income is looking good right now

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Australian fixed income is more attractive today than any other time in the past six months, says Perpetual’s GREG STOCK

AUSTRALIA is looking like a good place for fixed-income investors at the moment, argues Greg Stock – head of credit research and a senior portfolio manager in Perpetual’s credit and fixed income team.

“It’s a relatively solid economic backdrop, and there are opportunities available within the fixed-income asset class as inflation comes under control and rates fall,” he says.

Lower official interest rates affect fixed-income yields, as well as the credit quality of bonds, Stock explains. 

For example, lower mortgage rates help mortgagees repay their loans, and it also supports quality corporate borrowers.

Stock has upgraded his view on the Australian fixed-income market. “Over the last six to nine months we had a slightly unfavourable view and now we are neutral.” 

“There has been notable risk aversion to date and that has made valuations more attractive. We can now buy with confidence for a running yield and get some attractive returns in a stable asset class,” Stock says.

Perpetual derives a credit score for fixed-income assets based on the macro-economic outlook, valuations, technical factors and supply and demand dynamics.

“The macroeconomic outlook is subdued with the economy going through a mild downturn,” Stock says.

“Valuations are more attractive, our technicals have turned positive after being negative for quite some time, and the supply-demand dynamic is now more balanced.”

It's important to be diversified and focus on credit with an equity buffer in the capital structure, he says.

Bank credit is the prime example, but the universe includes infrastructure and energy, telcos and property, and other sectors.

“Security selection remains key. We look at risk and want to make sure we are getting fair value for that. We can afford to be choosy,” he says.

The benefit of being a large investor is that Perpetual does not need to over-concentrate in one sector and  risk becoming dependent on how that sector performs. 

The main risk to the outlook, Stock says, is a significantly disruptive change to global trade parameters.

“Some of the initial Trump Liberation Day tariff proposals were very much disruptive and that’s why markets reacted the way they did.

"If the tariffs were imposed, it meant global trade in some sectors would come to a standstill. That helps no-one, and it can be abrupt in terms of the short-term economic impact.

"Rationality and mutual interest have returned, and we are seeing that in talks between the US and China. 

“But if those initial tariffs were imposed, they would result in a significant elevation in risks."

Greg%20Stock.jpg
Greg Stock
Head of Credit Research, Senior Portfolio Manager
BCom (Acc & Fin), ICAA, SIA, AFMA
Greg Stock
Greg%20Stock.jpg

Greg Stock

Head of Credit Research, Senior Portfolio Manager BCom (Acc & Fin), ICAA, SIA, AFMA
Bio

Years of experience: 32

Years at Perpetual: 20

Greg has over 30 years experience in investment management, accounting and risk management. He has researched and analysed credit markets on both the buy side and sell side for over a decade and through multiple cycle. His research role is broad, he covers the bank and financial sector and is a credit signatory.  Greg is also a senior portfolio manager responsible for trade execution and portfolio construction for Perpetual's bond fund, absolute return fixed interest fund and exact market cash funds.

Prior to working at Perpetual, Greg had a similar research and portfolio management role at Macquarie Funds Management. And while at Macquarie Bank for over six years he had roles in debt markets research, risk and accounting. Earlier, Greg worked at PriceWaterhouseCoopers as a chartered accountant over six years.

This article has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426, as the issuer of the Perpetual Active Fixed Interest Fund ARSN 110 147 969 (Fund).

It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The information is believed to be accurate at the time of compilation and is provided in good faith. It may contain information contributed by third parties. PIML does not warrant the accuracy or completeness of any information contributed by a third party.

Forward-looking statements and forecasts based on information available at the time of writing and may change without notice. No assurance is given that the forecast will prove to be accurate, as future events may impact actual results and these could differ materially from those anticipated. Any views expressed in this article are opinions of the author at the time of writing and do not constitute a recommendation to act.

The product disclosure statement (PDS) for the Perpetual Diversified Income Fund, issued by PIML, should be considered before deciding whether to acquire or hold units in the Fund. The PDS and Target Market Determination can be obtained by calling 1800 022 033 or visiting our website www.perpetual.com.au.
No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital. No allowance has been made for taxation and returns may differ due to different tax treatments. Past performance is not indicative of future performance.