RECONSTRUCTING FIXED INCOME
In the face of historic levels of volatility, traditional approaches to fixed income may fall short – especially when it comes to taking advantage of new opportunities.
RECONSTRUCTING
FIXED INCOME
In the face of historic levels of volatility, traditional approaches to fixed income may fall short – especially when it comes to taking advantage of new opportunities.
As we enter a new era of fixed income investing, our Portfolio Construction and Strategy Team’s forward-thinking framework is designed to help advisors meet their clients’ return and income goals, without unintended risks.
FOCUS ON THE SILVER LINING
The historic volatility and losses that impacted virtually all major fixed income asset classes throughout the first half of 2022 has delivered an obvious silver lining: rates are higher, valuations are cheaper and fixed income investors now have a large opportunity set they can draw on to reallocate and rebalance their asset allocations.
In the current environment, our Portfolio Construction and Strategy Team is primarily focused on two of the three categories of fixed income solutions: Defend and Diversify. Click on the graphic to the left to learn more about each.
DEFEND – AIM TO AMPLIFY YIELD CUSHION
Goal
Seeks to provide lower volatility equity diversification in an equity market downturn.
Fresh Opportunities
The year-to-date sell-off across all of fixed income provides many opportunities for investors to increase their exposure to historically defensive sectors with yields that have been more recently reserved for higher-risk areas of the market. Among these defensive sectors, we see opportunities to add to several areas of the securitized markets – particularly agency mortgage-backed securities (MBS), where yields are materially higher than in many other defensive sectors. Beyond relatively high yields, these defensive sectors offer additional return potential if growth meaningfully slows, equity markets sell off and rates decline in the future.
INCREASE INCOME – RELY ON EXPERTISE AND GRIT
Goal
Increased return and income potential via exposure to higher-risk fixed income.
Tactically Monitor
High yields don’t guarantee positive prospective returns, but investors need to pay heed to opportunities when presented. Many of the riskiest sectors within this category may be currently best accessed via a flexible approach outlined in the “Diversify” category. As risk moderates, we believe sector- and security-selection expertise in this space – along with appropriate timing and a strong stomach – are the keys to navigating a recovery.
Featured Funds
DIVERSIFY – STAY A STEP AHEAD OF RAPIDLY MOVING MARKETS
Goal
Dynamically combine some elements of equity diversification with higher income potential.
Forward Thinking
The current environment presents attractive discounts (and even dislocations) in many high-risk and high-yield asset classes. However, investors would be wise to remain cautious and expect further volatility and losses to accompany the current high-return potential of these asset classes.
Against this backdrop, diversifying strategies can help “re-risk” core fixed income overweights and/or “de-risk” overly aggressive fixed income allocations. These dynamic tools actively allocate to areas of the market that appear attractive while remaining flexible to increase or decrease the portfolio’s risk budget in response to changing market conditions.
Connect with one of our experts
Our dedicated portfolio strategists can analyze your fixed income lineup and examine how its behavior in past rising-rate and risk-off markets might prepare you for the current environment.
For Financial Professionals – for a complimentary assessment, please complete this form and we will be in touch.
As of 6/30/22, Developed World Bond Fund Class I Shares Morningstar RatingsTM in the World Bond USD Hedged category: 4 stars out of 112 funds, 5 stars out of 89 funds, 5 stars out of 58 funds and 5 stars out of 112 funds, for the 3-, 5-, 10-year and Overall periods, respectively.
As of 6/30/22, Multi-Sector Income Fund Class I Shares Morningstar RatingsTM in the Multi-sector Bond category: 4 stars out of 280 funds, 4 stars out of 248 funds, and 4 stars out of 280 funds for the 3- and 5 year and Overall periods, respectively.
As of 6/30/22, JMBS Mortgage-Backed Securities ETF Morningstar RatingsTM in the Intermediate Government category: 4 stars out of 226 funds, and 4 stars out of 226 funds for the 3- year and Overall periods, respectively.
Ratings based on risk-adjusted returns.