/institutional/perspectives/portfolio-strategy/fixed-income-core-conundrum

Solving the Core Fixed-Income Conundrum

Shortening duration, maintaining an investment-grade portfolio, and generating attractive yields do not have to be competing investment objectives for core fixed-income investors.

July 09, 2018


Core Conundrum Video

Anne Walsh explains the Guggenheim approach to solving the Core Fixed-Income Conundrum.


In the 2018 edition of The Core Conundrum, Guggenheim’s investment team discusses why it believes investing in sectors not included in the Bloomberg Barclays U.S. Aggregate Bond index is the key to generating income and enhanced risk-adjusted returns in today’s evolving fixed-income market.

Key takeaways:

  • Low interest rates and a benign credit environment have encouraged some investors to reach for yield by increasing duration risk, credit risk, or both.
  • Investors may be underestimating the risks posed by these investment shortcuts, particularly as U.S. monetary policy tightens and the end of the credit cycle approaches.
  • At $19 trillion, the Bloomberg Barclays U.S. Aggregate Bond index represents less than half of the total U.S. fixed-income universe, leaving out $21 trillion of non-indexed securities.
  • The group of securities not included or underrepresented in the benchmark index includes structured credit and floating rate instruments, which may offer comparable or higher yields and lower durations than similarly rated corporate bonds.
 
Important Notices and Disclosures

Investing involves risk, including the possible loss of principal. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values to decline. Investors in asset-backed securities (structured products), including collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate. High yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility. This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.

© 2018 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.


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© Guggenheim Investments. All rights reserved.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.