Three Concepts Seeking to Enhance Risk-Adjusted Yield
In a yield-starved world, there has been a proliferation of new income investment solutions. While innovation is welcome, many of these solutions stretch the risk boundaries of traditional income asset classes by utilizing increasingly complex instruments. We believe these new capabilities can offer opportunities, but investors need to be more mindful than ever of potential hidden risks. We have identified three primary areas of focus for investors looking to enhance their portfolio’s risk-adjusted yield:
Put Cash to Work
A flattened yield curve is a boon to cash investors as less risky, shorter-term Treasuries offer similar yields as higher-risk, longer-term Treasuries.
De-Risk Traditional Core Bonds
Short duration can reduce portfolio interest rate risk without a meaningful yield reduction.
Developed world bonds can help diversify U.S.-specific duration with relatively similar risk.
Consider Agency Mortgages
Mortgage-backed securities can offer diversification within the sub-asset classes of traditional fixed income.
Core fixed income investment considerations
While we believe there are ample opportunities in higher-yielding, equity-like fixed income markets, we also think investors must use discretion when using these higher-octane strategies. Delegating to dynamic, multisector credit strategies creates the potential to maintain exposure to higher yields in credit markets while potentially de-risking single sector risk.
Given large concentrations in U.S. equities, some investors may not recognize the significant income potential in overseas equities. Depending on risk tolerance, it’s convenient for many income investors to seek opportunities to reallocate equities globally, where yields can commonly be double or triple that of U.S. equities.
An Investment Approach Driven by Bold Thinking
We believe in confronting uncertainty head-on – not merely reacting to change but finding opportunity in it. Hear from our investment professionals on how they apply this approach in their fundamental research, part of an ethos we call