Long-term investment warning

WITH THE trend towards historically low interest rates set to reverse over the medium term, pension investors are being urged to avoid investing in long-term bonds.

According to pension consultants Hewitt Associates, the predicted rise in interest rates will make “fixed income investing a more difficult proposition in the years ahead”. It recommends that defined contribution pension schemes looking to avail of the safer characteristics of bonds should focus on shorter-term fixed income products, investing for five years, rather than 10 or 30.

Hewitt also recommends that pension investors consider moving away from traditional managed funds in favour of multi-asset funds, which may offer access to a wider range of asset classes, such as commodities, currencies and hedge funds. However, Deborah Reidy, head of the Hewitt Ireland investment practice, warns that investors need to do their research before allocating money to multi-asset funds because of the wide range of returns on such funds.

According to Hewitt, for the six months to the end of June, there is a range of 10.7 per cent between the top and bottom funds.

The top performing multi-asset fund was Standard Life’s GARS fund, which is an absolute return fund. It returned 6.5 per cent.

The Friends First/FC Diversified Growth fund was the poorest performer in the year to June, losing 4.2 per cent of its value.