/perspectives/portfolio-strategy/the-core-conundrum

The Core Conundrum

The deepening chasm between investors’ return targets and current market realities is creating a conundrum for core fixed-income investors.

July 20, 2015   |    By Guggenheim Partners


Report Highlights

  • The combined impact of U.S. monetary and fiscal policy has created the core conundrum: How can core fixed-income investors meet their yield objectives while maintaining low tracking error to the Barclays Agg, which has become approximately 70 percent concentrated in low-yielding government-related debt?
  • The benign credit environment is encouraging some investors to take investment shortcuts to generate yield, such as increasing credit and duration risk. Investors may be underestimating these risks, particularly as the accommodative policy environment slowly draws to an end.
  • In the current environment, we believe the surest path to underperformance is to remain anchored to the past. Investors must develop a new, sustainable, long-term strategy to generate attractive returns. Opportunities exist beyond the Barclays Agg, where robust credit work can uncover a world of investment-grade, fixed-income securities with higher yields and lower durations than government and corporate bonds.
  • Accessing short-duration, high-quality investment-grade securities with considerable yield pickup relative to government and corporate bonds may be the investment blueprint needed to navigate the current low-rate environment and hedge against interest-rate risk.
 
 
 

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Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

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