Adam Hetts, Global Head of Portfolio Construction and Strategy, talks with Head of US Fixed Income Greg Wilensky about the challenges – and unique opportunities – associated with building bond portfolios in a world with historically low interest rates.

Key Takeaways

  • While the Bloomberg Barclays US Aggregate Bond Index was once a good starting point for building diversified bond portfolios, it has increasingly become only that. Greg explains how the index’s inefficiencies can be exploited, enabling an active manager to potentially add value through higher returns, lower volatility, or both.
  • Despite the steepening US Treasury yield curve, Greg views a sharp increase in rates or inflation as unlikely. The Federal Reserve’s (Fed) interest in stimulating the economy and investors’ demand for yield – coupled with US rates being among the most attractive developed world government bonds – should moderate the rise.
  • Bond investors will need to balance the risks required to generate additional returns against sacrificing too much of the diversity they expect from bonds. Greg and Adam discuss how fundamental research and quantitative analysis may assist in both navigating the changing environment for bonds and building more optimal portfolios.