Floating rate income can deliver rate rise benefits and diversification for portfolios

Income investments which target floating rate payments can add valuable diversification to income portfolios, as rate rises eat into fixed rate interest returns, according to Dean Weinbren, Managing Executive for Pengana’s TermPlus online high-yield fixed term accounts.

As featured in AdviserVoice. View the original article here.

Income investment has arguably become even more attractive following changes to Capital Gains Tax (CGT) in the last Federal Budget, though diversifying within income portfolios is important to navigate volatility in interest rates, Weinbren said. “We’ve seen volatility in interest rate predictions over the last couple of years, and investors could have been caught out in thinking interest rates were on a downward trajectory.

“But markets and experts are now expecting at least one additional rate rise for 2026, as reserve bank tries to tame inflation.

“For many income investors, these rate rises can represent a missed opportunity if they are over-exposed to fixed rate income, and trapped at a lower rate while the RBA rate heads higher.

“Floating rate mean investors will have the potential to enjoy a higher return in line with rate increases, which has obvious benefits during times of higher inflation.”

Weinbren acknowledged floating rate accounts can work both ways, with investors receiving a lower return in line with interest rate cuts. The key factor is considering the targeted spread over and above the RBA cash rate, which can protect investors’ savings from inflation.

“When rates are rising there is going to be more pressure in the economy, and more pressure felt by investors. Receiving higher returns via floating rate investments is important to ease that pressure and maintain long-term performance.

“The main thing for investors to consider is the spread between the RBA cash rate and the returns paid to the investor.

“This spread can help to keep investors ahead of inflation, whether rates rise or fall.

“From a diversification point of view, it’s good to know at least part of your portfolio will benefit from increased interest rates”, Weinbren said.

Due to increasing demand for the product from financial advisors, TermPlus now has a financial advisor portal allowing advisors quick and easy access to a quality portfolio of floating target rate global private credit investments managed in association with global investment leader, Mercer.

These online term accounts may be appropriate for self-managed super funds, pre-retirees, retirees, companies, charities, trusts, or anyone looking for an attractive and reliable monthly return thorough a fixed-term account.

TermPlus target rates are set as a fixed margin above the cash rate with accounts paying RBA Cash Rate + 3% for a 1 year term, +3.65% p.a. for a 2 year term, and +4.15% p.a. on a 5 year term account.

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IMPORTANT INFORMATION AND DISCLAIMER

The issuer of units (Term Accounts) in TermPlus (ARSN 668 902 323) is Pengana Capital Limited (Pengana) (ABN 30 103 800 568, AFSL 226 566). Any advice provided is general in nature and does not take into account your particular objectives, financial situation or needs. You should consider the PDS and TMD before investing in TermPlus.

Any reference to a target rate is a reference to the investment objective for the relevant account option in TermPlus, which may vary during the term. Importantly, target rates are not guaranteed, and any investment is subject to investment risks. Any forecasted returns may not reflect actual performance, and past performance is not a reliable indicator of future performance. Pengana is not a bank and is not regulated by the Australian Prudential Regulation Authority. Investing in TermPlus is not the same as depositing money with a bank. For further details, please see the Important Information page on our website.

Mercer Consulting (Australia) Pty Limited (ABN 55 153 168 140, AFSL 411 770), which is a wholly owned subsidiary of Mercer (Australia) Pty Ltd (ABN 32 005 315 917) (Mercer Australia) collectively referred to as Mercer. References to Mercer shall be construed to include Mercer LLC and/or its associated companies. ‘MERCER’ is a registered trademark of Mercer Australia.