Corporate Bonds Should Offer Stability And Attractive Returns For Investors Through Unstable Times Ahead

One of New Zealand’s leading Fixed Income managers says that despite the prevailing sense of global economic jeopardy, New Zealand’s Corporate Bond market looks set to continue to offer value for investors through 2025.

Nikko AM NZ Head of Bonds and Currencies, Fergus McDonald, says that where last year investors and fund managers needed to pick when and how far interest rates would fall, this year they’re focused on working out how long they’ll remain low for.

“For retail investors, it’s always worth remembering that your bond market strategy should be the opposite of your home loan approach. If rates are falling, you’ll not want to be locked into your mortgage. By contrast, from a bond market perspective, you’ll want to be locked in at the higher rate for as long as possible.”

With the New Zealand economy performing poorly and inflation quickly falling, McDonald says many bond investors were caught a little unawares by the speed with which the OCR came down.

“We recognised this emerging trend and moved earlier than most, thereby delivering on one of investments great truisms that it’s better to anticipate than to react,” he says.

This reading of the tea leaves, aligned to a portfolio strategy of providing stability and peace of mind to investors through exposure to strong Kiwi companies and banks, played a significant role in Nikko AM being named Fund Manager of the Year – Fixed Interest by Morningstar for its Corporate Bond fund. McDonald believes these fundamentals should continue to be attractive to investors this year and beyond.

“The Official Cash Rate is predicted to fall to a level that will likely see bonds outperform cash and term deposits, and so we anticipate seeing investors move even more of their capital to Corporate Bonds from these other vehicles.”

“Furthermore, while we know that all financial markets suffer during times of uncertainty, the bond market is unlikely to feel the heaviest impact of ‘Trumpenomics’. Less globalisation and more protectionism means slower growth, which while not ideal for the wider economy, tends to be good for bonds.”

About Nikko Asset Management

With US$246.1 billion* under management, Nikko Asset Management is one of Asia’s largest asset managers, providing high-conviction, active fund management across a range of equity, fixed income, multi-asset and alternative strategies. In addition, its complementary range of passive strategies covers more than 20 indices and includes some of Asia’s leading exchange-traded funds (ETFs).

Headquartered in Asia since 1959, Nikko Asset Management and its subsidiaries employ personnel representing around 30 nationalities, including approximately 200 investment professionals**. The firm has a presence through subsidiaries or affiliates in a total of 12 countries and regions. More than 400 banks, brokers, financial advisors and life insurance companies around the world distribute the firm’s products.

The investment teams benefit from a unique global perspective complemented by the firm's historic Asian DNA, striving to deliver consistent excellence in performance. The firm also prides itself on its progressive, solution-driven approach, which has led to many innovative funds launched for its clients.

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For more information about Nikko Asset Management and to access its investment insights, please visit the firm’s homepage.

* Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of 30 September 2024.

** Including employees of Nikko Asset Management and its subsidiaries as of 30 September 2024.

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