Australian investors’ portfolios are commonly allocated between two extremes: low-risk cash and fixed interest at one end, and high-risk equities (predominantly Australian equities) at the other, leaving a rather large gap in the middle.

This is unfortunate, because there is an income-producing asset that sits comfortably in that gap. This is The Missing Asset Class.

Investors are facing a common challenge: falling cash rates make it hard to earn a real return above inflation. Record-low yields on asset classes like cash (term deposits) and traditional fixed interest (government bonds) provide little investment income, while attempting to target similar returns from previous years may force investors to allocate into riskier asset classes such as equities, just as those markets are reaching new peaks.

Before making any investment decision, whether it’s in equity, fixed income or property it’s important to consider whether you are adequately compensated for the risks you are taking. Understanding where your investment sits in the capital structure will help you recognise the potential downside that could result in permanent loss of capital.

A discussion paper written by Richard Quin, concerning the position of credit vis a vis portfolio construction in the post global financial crisis economy.