How to find recession-proof assets

Fixed-income investors currently find themselves in a low-yield world and it looks like this will be the case for some time. Given this environment, it will be important for investors to seek income from safe, defensive assets. For Jay Sivapalan at Janus Henderson Investors, this means good-quality, investment-grade companies.

And in the Australian debt market, there is a whole range of quality domestic and global names that Janus can get investors exposure to, in addition to the senior debt of some core infrastructure assets. Jay cites Port of Melbourne as an example, which he describes as a simple, largely "recession-proof" asset offering a five-year yield to maturity that is double that of the cash rate.

Watch this exclusive video to hear more about where else Jay is finding the most attractive fixed-interest assets, as well as how he goes about building a solid, defensive portfolio.

Transcript:

I think as fixed interest investors we still find ourselves in a relatively low yield world and we're going to be in this world for quite some time to come. We do discuss that yields may be going up gradually, but they're not going to be materially higher than where we are today. I think in that environment investors need to seek out income from safe, defensive assets.

For us, that's very much in the space of very good quality high-grade, investment-grade companies. If you look within the Australian debt market, there are a whole range of both domestic and global iconic brands and names that we can get exposure to for investors as well as some core infrastructure assets. By core infrastructure assets I mean senior debt of those infrastructure assets.

One of the examples that I always use and really like is Port of Melbourne. A very simple asset. It's largely recession-proof. It runs a landlord operating model and the yield to maturity on a five-year security is double that of the cash rate, so these are the types of assets we think are defensive enough in terms of characteristics for investors and can still provide a reasonable yield in this low yield environment.

One of our observations over the past decade in this low yield environment has been the chase for yield and chase for income. Now, that's fine if you're making allocations away from equities towards high yielding sectors of the bond market, but one of our observations over many cycles is that when yields are perceived to be low investors always turn their traditional fixed interest and high-quality defensive allocations towards high yielding proxies. Global high yield, secured loans, emerging market corporate debt and we're starting to see that now.

For us when we're designing defensive portfolios for investors and by defensive, I mean securities and exposures that go up in value when growth assets like equities go down in value in a stressed environment, we need to consider having a decent holding of government bonds, state government bonds, and very high quality defensive corporate bonds.

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The flexible asset allocation ranges and fundamentally driven approach of Jay's Tactical Income Fund allow him to meaningfully adjust the level of fixed interest exposure to both enhance performance in periods of falling interest rates and conversely, to protect value from the adverse impact of rising yields. For more information click the contact form below, or visit their website.