Redefining duration: creative solutions for evolving markets

Adam Hetts and Sabrina Denis from the Portfolio Construction and Strategy (PCS) Team examine the opportunities across government, credit and alternatives markets for fixed income investors to navigate rising rates.

The PCS Team partners with investment professionals, guiding the portfolio allocations of clients to meet their objectives. In recent portfolio consultations, we have heard many clients ask for our perspective on reducing fixed income duration through the use of alternatives or short duration strategies.

The concern is that rising interest rates could derail objectives for their portfolio. However, as our portfolio consultations tend to unpack these interest rate fears, we find that what is initially broad pessimism can be organised into a few specific concerns, and importantly, specific portfolio solutions.

Even in an environment defined by low interest rates and tight credit spreads, there are ample risk-adjusted opportunities across government, credit and alternatives markets. Many of which are not the typical ‘short duration’ solutions but nonetheless deliver important ways for fixed income investors to successfully navigate the risk of rising rates.

In this article, we aim to distil our recent client portfolio consultations into three typical client ‘personas’ we encounter and how, throughout each, we find opportunities to redefine what they view as their ideal ‘short duration’ solution.

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