High quality government bond exposure should always have a seat at the asset allocation table. It can help to defend and protect your investment portfolio by providing income, liquidity and downside protection, especially in periods of heightened volatility.
High grade government bonds are considered some of the lowest risk investments in the market and sit within the defensive allocation of a diversified portfolio. They are explicitly backed by the Government (Commonwealth, state/territory or quasi-government agency) and are highly rated (e.g. AAA or AA rating by agencies such as Standard & Poors and Moody’s). This means they have a low probability of default, giving investors much higher levels of protection.
As government bonds typically exhibit low to negative correlations relative to higher risk assets like shares, they can help to preserve capital in periods of heightened market volatility or economic distress. In addition, they offer a different source of risk relative to other commonly held financial-sector risk which may be present in portfolios e.g. corporate bonds, hybrids, and bank shares.
High grade bonds earn the majority of their return from income and the income on the income (i.e. compounding – income on coupons and maturing bonds being reinvested) over time. This means in different interest rate environments (rising, falling or flat), the asset is self-rebalancing over time. The deep engagement of so many participants in the high grade bond market – often legislated (e.g. central banks, pension plans) or mandated by virtue of business (e.g. insurers) also means they are highly liquid in all markets conditions.
Defend over time by providing the stability of principal and income
Offer liquidity in all market conditions
Provide good diversification against higher risk asset holdings
Represent a different source of risk (relative to other commonly held financial-sector risk present in portfolios
Improve risk-adjusted returns when combined with credit in a balanced portfolio
Peace of mind through capital preservation
This information is provided by the Investment Manager, JamiesonCooteBonds Pty Ltd ACN 165 890 282 AFSL 459018 (‘JCB’). Channel Investment Management Limited (‘Channel’) ACN 163 234 240 AFSL 439007 is the Responsible Entity and issuer of units in the CC JCB Active Bond Fund ARSN 610 435 302 (‘the Fund’). This information should not be considered advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling units in the Fund and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. For further information and before investing, please read the Product Disclosure Statement available on request.