During 2015 nearly $6 billion of retail corporate bonds will mature in the New Zealand market returning cash to investors. Corporate issuers are increasingly going direct to the wholesale market with their new bond issues making it difficult for retail investors to maintain appropriately diversified direct bond and fixed interest portfolios.
Since the beginning of 2014, only 30% of new corporate bond issuance by volume has been available to retail investors. This trend has been largely driven by the growth of KiwiSaver, which is providing corporate bond issuers with a ready pool of wholesale demand. It is easier and faster for issuers to operate in the wholesale market, without the need for retail documents and long periods of marketing and building a retail book of demand. The more recent bond issues that have been available to retail investors have tended to be in securities with lower credit ratings or that are lower down the capital structure. In times of stress, these instruments can behave more like equities than fixed interest.
The trend above underscores our longstanding preference for an appropriate weighting to bond funds within a portfolio rather than selecting individual securities. This provides more control over the diversification and quality of bond exposure, without compromising returns as seen below:
Our researched selection of bond fund managers and access to wholesale markets at low cost for both international and domestic fixed interest securities has increasing merit in an environment where doing it yourself, even with the aid of a broker, is increasingly difficult.