Milford delivers attractive yields and a buffer against volatility

"We're defined by three key philosophies," says Ip. "So firstly, we have a strong belief in active management. Despite being a New Zealand asset manager, we are one of the most active investors in Australia across the fixed income and equity markets." 

"The second philosophy is we invest alongside our clients. So all of our personal savings are invested in the firm or the firm's products and its funds. And so our success depends wholly on our client's success."

"The third of those is that we're independent, we're employee owned and we have a strong belief in staying that way."

The Milford Corporate Bond Plus Fund

Milford's fund is primarily invested in Australian dollar-denominated securities and looks to deliver on two key metrics: regular income and low volatility. 

"It is a liquid investment-grade strategy that's focused on the Australian corporate bond market," says Ip. "We target the highest quality issuers and we aim to create a steady stream of income for our investors with low volatility."

Ip says the bond market looks robust, supported by a solid corporate sector and underlying economy. 

"If I look more deeply at the market and look at the fundamentals underlying the market, the situation looks quite healthy," he said. "If we look at corporate balance sheets, corporate leverage amongst corporate borrowers in Australia has not really materially increased over, say the past five to 10 years."

"The banking sector in Australia, which is the bedrock of the credit market here, is in extremely good shape. Since the financial crisis, they've increased their capital levels by upwards of 50%. They're very profitable organisations and they're profitable for a number of reasons."

"At the end of the day, a profitable banking sector means a healthy credit market in general, and it's a sector that is willing and able to lend to corporates and households across the country."

The outlook for Australian households is similarly healthy, says Ip.

"The unemployment rate in Australia is fairly low, and when you have low unemployment, that means low mortgage default rates, and then it comes back to a healthy banking system that is willing and able to lend to the Australian economy."

It means yields remain in a good spot, and can help protect against volatility elsewhere in markets. 

"The Australian corporate bond market is averaging yields anywhere between 4-5%," said Ip. "In our fund right now, the average yield is about 5%. So if you just look at that yield in isolation, it's at a fairly attractive level in its own right, but it's also at a fairly attractive level compared to other asset classes."

"When we compare it to history, the current level of yields is also at a very attractive level. That level of yield provides a strong buffer against potential future market volatility."