Fixed Income Market Landscape
Investors have traditionally relied on buy-and-hold fixed income investing. The future may prove difficult for a buy-and-hold core fixed income approach. Among the potential headwinds facing investors:
- Historically low interest rates on U.S. and other large developed nations’ government bonds.
- Significant compression in credit spreads for high-yield corporate bonds and less credit-worthy sovereigns.
- Inflation pressures that could surface as a result of global monetary stimulus.
- The Federal Reserve has signaled a desire to raise interest rates and unwind its enormous bond portfolio, potentially placing selling pressure on bonds.
Investors may benefit from using adaptive strategies that can meaningfully participate during periods of market upside while having the potential to limit downside.
Combining macro and trend for unique portfolio construction approach
- Our system places a critical focus on macro/regime analysis to determine the nature of risk in the fixed income market.
- For example, if perceived macro risk is high, we may favor Treasury bonds while if macro risk is low, we may favor growth-sensitive bonds like High Yield.
- We then utilize trend and momentum signals to allocate to market leadership inside each portfolio bucket.
Targeting a mix of growth and income
- In bullish fixed income markets, the strategy seeks to provide income and capture price trends for capital appreciation.
- In bearish markets for growth-sensitive bonds, the strategy may continue to provide income from "quality" fixed income such as treasuries or investment grade corporate bonds.
Multi-faceted risk management for rising rates or inflation
- In rising rate environments, the portfolio can allocate to cash or short-duration bonds to limit duration risk.
- In inflationary markets, the strategy can move to short-term inflation-protected bonds (TIPS) to reduce duration and potentially provide protection against inflation.
Fully systematic implementation of fixed income strategy
- Automated, systematic programs for security selection and portfolio construction.
- Our systems are auto-adaptive, evolving and incorporating new data and learning as markets change.
- We constantly identify, clean, and test the reliability of new data for our systems.
Fixed Income Investment Universe
The strategy seeks income and capital appreciation, and can invest across the fixed income market spectrum. In bullish credit market regimes, the portfolio can allocate to growth-sensitive bonds (convertibles, high yield, or emerging market bonds). The strategy can also pivot to "quality" bonds (investment grade corporates or treasuries) in "risk-off" markets. In rising rate environments, the strategy can allocate to short-term TIPS or cash to manage risk.
Contact Us for More Information
If you are interested in learning more about our Adaptive Fixed Income Strategy, please fill out the form below to set up a meeting with our team.