Taking a closer look at yield metrics in an evolving rate environment
Portfolio Manager John Kerschner discusses why, given the rate at which the fixed income landscape has changed over the past year, thorough fund due diligence should start with an understanding of how each yield metric is calculated.
2 minute read
- Navigating the multiple ways in which yield is reported on fund websites and factsheets across the industry can make fund due diligence challenging.
- There is no single “best” metric for reporting fund yields; each measure provides an advisor or investor with important insight into a fund that can be used to evaluate the fund and assess its role in a portfolio.
- As advisors look for opportunities to put the income back into fixed income, understanding the differences among various measures of yield can help identify which funds might be best suited to meet client needs.
It wasn’t too long ago that terms such as “lower for longer,” “zero interest rate policy” and “reaching for yield” dominated articles and white papers focused on fixed income investing. Today, they are virtually nonexistent, as the Federal Reserve has raised interest rates in each of the last nine FOMC meetings, bringing bond yields to the highest levels in more than a decade.
Amid this shift, a growing universe of investors and advisors are revisiting bond allocations with an eye toward benefiting from this move in rates. In doing so, the challenges of navigating the multiple ways in which yield is reported on fund websites and factsheets across the industry have resurfaced to make fund due diligence and comparisons a vexing endeavor.
Read the full article originally published in Financial Advisor Magazine.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
Any risk management process discussed includes an effort to monitor and manage risk which should not be confused with and does not imply low risk or the ability to control certain risk factors.
Net Asset Value (NAV) represents the net value of a fund’s assets on a per-share basis.