Investors should consider adding high-yield bonds to a growth asset portfolio, Mercer head of fixed income Sue Wang has said.
Wang said high-yield bonds had been overlooked and were poorly developed in the Australian market in comparison to the United States and Europe.
Australian investors who have invested in high-yield bonds have typically added them to their bond portfolio, rather than a growth portfolio.
"When you think about it in the perspective of a bond portfolio, which is meant to be defensive, the argument has always been that you shouldn't have these in there the whole time because they don't behave defensively all the time," Wang told InvestorDaily.
"But we've looked at them in the context of a growth portfolio, and there are really strong reasons why you should have these both as a tactical and [long-term] asset."
She said high-yield bonds did not need to be monitored closely, gave good growth and provided diversification with equities.
"It seems to do really well when equities do badly and chug along okay when equities are surging. Hence why we think it's a nice component to add to your equity portfolio for that little bit of insulation during periods when equities are really doing poorly for you," she said.
She said although it was understandable that investors wanted to avoid risk in an uncertain environment, they should consider reallocating part of their growth portfolio to high-yield bonds.
"When you look at the existing risks in your portfolio, [some of] those risks or exposures aren't doing what they are meant to for you. So you would be remiss to not look at, or at least consider, alternatives," she said.
"We seem to be in an environment where we are chugging along, and the chug along tends to bode well for high yield."
