Bond specialist raises concerns over recent FMA guidelines

When the FMA released an investor guide encouraging retail investors to consider putting more money into bonds, a few eyebrows were raised. One of the people concerned with the guidelines was Hunter Investments managing director Tony Hildyard.

Hildyard told Good Returns that “There are a lot of risks that we in the industry take for granted because we are managing them everyday. I was a little concerned that the FMA hadn’t really covered them. ”

The lack of discussion of diversification was key for Hildyard who explains that “New Zealand grade A assets only really include the banks, a few councils and a couple of power companies. There isn’t really diversification, there isn’t really opportunity and anyone who just goes and buys one or two bonds, they are either going to win big or lose big.”

For Hildyard, the risks involved in bonds are more complex than the FMA guidelines made out. He claimed that the difference between credit ratings were not clearly addressed. A recent study from financial researcher, S&P Global Ratings, found B rated bonds had an almost 30-times higher chance of defaulting than A rated bonds. On this topic Hildyard says that “to the layman a B sounds pretty good, to a professional anything below BBB is starting to be speculative. You need to know the risks.”