AUSIEX throws support behind local bond market growth

Opportunities in the Australian fixed income market remain untapped for investors and more can be done to “increase direct investment” in the asset class, according to a new report from wholesale trading platform AUSIEX.

The second edition in its ‘Prepare for Change’ series, titled ‘The Bond Atom: Understanding bonds at the atomic level’, suggested Australian investors and their portfolios remain underweight in exposure to bonds and fixed income strategies, despite the prevalence of innovative products such as exchange traded funds (ETFs) driving increased allocation to the asset class.

Patrick Salis, CEO of AUSIEX, said expanding the presence of bonds on platforms – a popular tool used by both investors and financial advisers – is “critical” to diversify access to investment options.

“An expanded bond market presents a significant opportunity for bonds to play a larger role in Australian investors’ portfolios as well as in the wider economy,” Salis said.

“We see the opportunity as in a sense similar to the early ‘E*TRADE era’ in the United States – when online platforms first made equities directly available to retail investors. Just as E*TRADE and the platforms which followed helped democratise equity investing globally, we believe this can also be done with fixed income investments, especially with the phasing out of hybrids from the local market.

“While fixed income solutions are increasingly available on platforms, an alternative way to improve access to and drive awareness and education on bonds is to enable direct investment in bonds. FIIG provides access to the primary market and a secondary market to investors and advisers in small parcels that are within reach of all Australians.”

The report also highlights two key demographic trends that increased exposure to bonds in investment portfolios can support, including:

• As the Baby Boomer cohort retires, preservation of capital while still maintaining a steady return above the rate of inflation (income) becomes an important need. The greater use of bonds in a portfolio is a more optimal solution to this requirement than what can be achieved by relying solely on cash and equities for a given level of risk.
• As new generations enter the retirement system and they continue to use equities and new assets including ‘crypto currencies’, bonds can be used to balance the higher volatility of these assets in this cohort’s investment portfolios.

The paper’s release followed in the wake of AUSIEX’s recent acquisition of the $4.5 billion fixed income specialist, FIIG Securities, which – the paper said – highlighted an opportunity for value creation for investors and financial advisers by leveraging the strength of FIIG’s bond offering combined with AUSIEX’s own platform capabilities.

“AUSIEX, for example, can combine our scale and technological know-how to work with industry partners, dealer groups, advisers and our wrap clients to make the vast over-the-counter bond market easily accessible to advisers and investors,” Salis said.

“This will include ongoing investment in the AUSIEX platform which, via its recent FIIG acquisition, is now one of the most comprehensive investments trading and portfolio administration platforms in the country today.”