The future of the (non) banking sector

Andrew Lockhart

Metrics Credit Partners

Investors, of all types, can no longer ignore that they need to refine their income investments. With the major banks under continued regulatory pressure, the non-banking sector is set to dominate in 2020.

Not that long ago, portfolios were ‘balanced’ with a mix of equities and bonds (equities for growth and bonds for income) and the more conservative portfolios held more bonds – traditionally government bonds.

Those bonds are now returning 1% or less, less than inflation, which means investing in them means you are losing money, going backwards!

By simply recognising this, investors can easily turn this – and their income – around and earn more. 

How? By simply taking a slight step up along the risk curve from government bonds to the corporate debt of ASX-listed and other sizeable companies that the big banks currently lend to. 

The returns of such corporate loans can range from 4% to in excess of 10% currently. 

They are often secured by direct security recourse over the company and covenants/rights; in the same way banks may hold security over the assets of a company they lend to. They are also well diversified, with in excess of 100 such corporate loan assets in one fund. 

In addition, this alternative asset class provides income-seeking investors with reliable monthly income and an exposure through exposure to the Australian private credit market.

If you choose an ASX-listed investment vehicle you can also have daily liquidity, which is better than locking-up your cash in a term deposit for 90 days, 120 days or more.  

In terms of their returns, corporate loans have a low correlation to other major asset classes including equities, government bonds, hybrids and term deposits, providing an excellent source of portfolio diversification for investors. Until recently, a key issue for many investors has been accessing the corporate loan market, which has traditionally been dominated by the big four banks.

This investment strategy should be considered by superannuation funds, insurance companies, charities, universities and other high-net-worth individuals. So, if you’re an investor who isn’t shopping around for competitive rates and looking beyond traditional assets, you are missing out on generating the best fixed income returns possible in a low interest rate environment.

So please don’t ignore the potential of corporate loans and the benefits they can provide over money-losing cash and government bonds. 

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Andrew Lockhart
Managing Partner
Metrics Credit Partners

Andrew has more than 30 years’ banking, funds management and financial markets experience specialising in leverage and acquisition finance as well as corporate and institutional lending. Andrew’s considerable experience includes being responsible...

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