for rising interest rates

Size: px
Start display at page:

Download "for rising interest rates"

Transcription

1 Fall 1 Documeent title on one or two Positioning lines in Gustan bond Book portfolios pt for rising interest rates Stephen MacDonald, CFA Managing Director Client Portfolio Management Peter Moore Director Client Portfolio Management Four factors to consider in designing an effective fixed-income strategy The prospect of rising interest rates comes into focus As the U.S. economy continues on its steady, moderate growth trajectory and the Federal Reserve s third wave of quantitative easing (QE) asset purchases comes to an end, a question at the forefront of investors minds is how to position portfolios for the rise in interest rates that is likely to follow. Predicting the timing and scope of an eventual increase in rates is not an easy task, as Fed and global central bank QE programs have distorted the patterns of demand for many types of fixed-income securities, creating a market that has been driven as much by technical as by fundamental factors. In the wake of the global financial crisis and recession of 7 9, Fed policy expanded well beyond its traditional focus on influencing short-term interest rates via the target federal funds rate, which has been maintained at nearly % since December 8. Through aggressive, open-market asset purchases (including three waves of QE), the Fed s influence has extended to medium- and long-term interest rates as well, including the bellwether 1-year U.S. Treasury yield (Exhibit A). The end of the Fed s substantial QE purchases of Treasuries and other fixed-income holdings will certainly have a bearing on the market interest rates on these securities, with the likely effect being higher rates than what would be expected under unprecedented stimulus. Exhibit A: Quantitative easing has kept rates low 1-year Treasury yield, daily closing values, 199 1* 9% QE1 QE QE Between late October 8 and the end of 1, the 1-year Treasury yield fell basis points, from % to 1.78%, with a record-low close of 1.% on July 5, 1. hile the 1-year yield subsequently climbed in 1, closing just above % at the end of the year, it has resumed its decline in 1. Given the U.S. economy s continued moderate strengthening and the final tapering of the Fed s QE asset purchases, this prolonged period of low interest rates is poised to end. * Through October 1, 1. Source: U.S. Treasury Department.

2 Because current market conditions differ from those in previous periods when interest rates rose, it is difficult to get a sense of what to expect in a rising rate environment by looking at past experience alone. Still, investors can better prepare for the eventuality of higher rates by understanding the various ways in which different types of fixed-income securities and investment vehicles may respond when rates rise, and by understanding the dynamics shaping the composition of today s fixed-income markets. Additionally, before making asset allocation decisions to protect against rising rates, investors should carefully evaluate alternatives to fixed-income investments particularly with respect to the possible effects these substitute investments may have on a portfolio s risk-adjusted performance. Four considerations for fixed-income investors In the pages that follow, we identify four factors that we believe will be essential to a successful fixed-income strategy in the rising rate environment to come. 1. Diversification matters. Different types of fixed-income securities respond differently to rising rates Sensitivity to interest-rate movements can differ substantially based on duration, credit quality, and type of security. In general, corporate bonds (both investment-grade and highyield) floating-rate notes, emerging-market debt, shorter-term issues, and certain types of structured securities may provide greater protection from losses during periods of rising rates. In such environments, spreads between Treasury yields and yields on lower-rated, higher-yielding securities tend to narrow. This is largely because improving economic conditions typically lead to lower expected default rates for non-treasury products, making them a potentially better relative value with a more favorable risk/reward tradeoff than Treasuries. For example, in 9, interest rates increased sharply, with the yield on the bellwether 1-year Treasury note climbing from.6% to.85%. As shown in Exhibit B, longer-term, higher-rated bond sectors tended to lag during this period, while shorter-term, lower-rated, and securitized assets outperformed. In some cases, the disparity in performance among categories was dramatic, underscoring the value of diversification. Exhibit B: Fixed-income performance may vary when interest rates rise In 9, as interest rates rose...lower-rated credits outperformed...short- and intermediate-term categories beat longer maturities % 1.91 Aaa 8.9 Aa 15.1 A 7.9 Baa 7% U.S. Aggregate.8 1 Yrs 5 Yrs 5 7 Yrs 7 1 Yrs 1 Yrs or higher...high-yield, emerging-market and investment-grade corporate bonds dominated other sectors 6% Treasuries (+ yrs) Treasuries Agencies Mortgage-backed Floating-rate Corporate Global emerging High yield Source: Barclays. Total returns for all categories shown are based on the respective components of the Barclays U.S. Aggregate Bond Index except as follows: U.S. floating-rate notes (Barclays U.S. Floating Rate Notes Index); global emerging markets (Barclays Global Emerging Markets Index); and high yield (Barclays U.S. High Yield Index). It is not possible to invest in an index. Index performance does not reflect investment fees or transaction costs.

3 A more recent example came in 1, when credit spreads were much tighter than in 9. The 1-year yield began 1 at 1.78% and finished the year at.%. Again, returns for fixed-income sectors varied widely in this rising rate environment, albeit somewhat differently than in 9. Nonetheless, with returns ranging from -1.66% for longterm U.S. Treasuries to.% for commercial mortgagebacked securities to 7.% for high-yield corporate bonds, the rationale for diversifying across sectors held true.. Active management may offer advantages over indexing. Greater flexibility can help mitigate interest-rate sensitivity In the past several years, public debt has crowded out private debt. For bond indexing strategies, the result has been much greater representation of Treasury securities, longer duration, and heightened sensitivity to interest rates. As shown in Exhibit C, since the Great Recession, the Treasury sector weighting in the Barclays U.S. Aggregate Bond Index has grown from 5.1% to 5.5% largely due to increased issuance by the U.S. Treasury based on large fiscal deficits over that period. Corporate bonds have also grown as a share of the index (albeit to a lesser degree), with companies taking advantage of low rates to refinance debt, extend maturities, and change their debt mix to reduce their cost of capital. Meanwhile, securitized assets, including mortgage-backed securities (MBS), commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), and other structured securities, decreased between 8 and 1. This decline reflects curtailment of private label (non-agency) MBS issuance because of credit quality concerns following the subprime mortgage crisis, along with diminished MBS supply due to more stringent underwriting standards from issuing agencies. These market dynamics have resulted in steadily growing demand for a shrinking supply of spread sector products (higher-yielding, non-treasury debt instruments), as fixedincome investors seek securities that represent compelling relative value, generate sustainable income, and are likely to be more resilient under a range of economic circumstances. Identifying such opportunities requires a careful, discriminating approach to security selection which tends to favor active managers. Compared with indexed portfolios, actively managed portfolios have greater flexibility to avoid the increased exposure to interest-rate risk currently reflected in broader market indexes. Accordingly, fixed-income investors may be better served by choosing active portfolios with a proven record of diversified sector allocation and effective security selection. It is also important to remember that actively managed strategies can take advantage of yield curve dynamics in order to mitigate the risk of rising rates. For example, given the steepness of the yield curve today, strategies that can benefit from roll-down (or price appreciation as a bond approaches maturity, assuming an upward sloping yield curve) and appropriate positioning along the curve may be rewarded. Exhibit C: Benchmark composition has changed Sector weightings in Barclays U.S. Aggregate Bond Index show growth in Treasuries as of 1/1/8 as of 9//1 1.5% 5.7% 9.7% 5.5% 1.5% Treasury Corporate Securitized (MBS, CMBS, ABS, other) Other.7% 17.67%.% Source: Barclays

4 . Interest-rate increases and potential market declines will likely be moderate. History offers some perspective on interest rates and market performance hile fixed-income losses due to rising interest rates present a risk, corresponding market fears may be disproportionate to the severity and lasting impact of the losses actually incurred. Such fears are based partly on exaggerated expectations for the scope of future rate increases. After months of market anxiety, varying interpretations of Fed guidance, and a 1 taper tantrum, it now appears that the end of QE along with the eventual onset of short-term rate hikes is largely priced into the market. Moreover, with the U.S. economy experiencing virtually no inflationary pressures, we think any coming rise in long-term rates is likely to be moderate and gradual. An increase of 1% to % in the 1-year Treasury yield, for example, would represent our base case scenario, occurring gradually between late 1 and the end of 16. In our view, the U.S. economy is far enough along in its recovery to withstand such a move. However, we also recognize that some risks to the recovery remain including markedly slower growth in Europe and China, which, combined with a stronger U.S. dollar, could dampen global demand for U.S. exports. Decelerating growth outside of the U.S. has already influenced the global interest-rate environment, which currently looks different than what we have seen in previous cycles. Ten-year yields are now higher in the U.S. than in Europe and most other major developed markets. This could help mute the scope of coming rate rises in the U.S. Assuming at least a mild to moderate rate increase is on the horizon, it s natural to try to anticipate its likely impact. e can look to history to see how fixed-income markets have performed when rates were rising, recognizing that the past may provide useful context but is not a predictor of future outcomes, as economic and market conditions are never identical. Indeed, the lack of historical precedent for the degree of market support that has been provided through the Fed s QE programs and uncertainty as to how credit markets may respond after this support is withdrawn make it particularly challenging to gauge the likely impact of forthcoming interest-rate changes. ith that cautionary note in mind, our analysis shows that bond markets have tended to be resilient, bouncing back after initially incurring losses during rising rate environments. For example, based on previous periods when the 1-year Treasury yield was low (less than.5%) but increasing, intermediate-term government bonds realized losses of 1% % over one-year time frames. As illustrated in Exhibit D, however, these short-term losses reversed over medium-term time frames. Exhibit D: Bond markets have shown resilience following rate increases Intermediate-term government bonds 1-year and rolling -year total returns since year return Rolling -year return % hat happens when rates rise sharply from low levels? Since 196, there have been three years 191, 1958, and 9 in which long-term interest rates started below.5% and jumped by at least 5 basis points (.5%) over the course of the year. In those years, intermediate-term government bonds posted losses of -.%, -1.9% and -.%, respectively. However, those one-year losses reversed relatively quickly. Three-year returns (encompassing the current year and the subsequent two years) for 191, 1958 and 9, were.67%,.19% and.6%, respectively. In fact, as shown in this graph, despite 1 instances of negative one-year returns since 196, average annualized returns for intermediate-term U.S. government bonds have been positive over all rolling -year periods. Of course, past performance is no guarantee of future results, and there is no assurance that bonds will perform similarly if interest rates rise sharply from current levels. Source: Ibbotson Associates. Performance reflects the Ibbotson Associates Stocks, Bonds, Bills, and Inflation (SBBI) US Intermediate-Term Government Total Return USD index. It is not possible to invest in an index. Index performance does not reflect investment fees or transaction costs.

5 In fact, average annualized returns for intermediate-term U.S. government bonds have been positive for all rolling three-year periods since 196. There is no guarantee that fixed-income markets will repeat this pattern of short-term reversals in the next interest-rate cycle. Nonetheless, in the long run, the risk of being underexposed to fixed income due to market timing may outweigh the risk of exposure to rising interest rates. Investors who maintain a longer-term focus and resist the impulse to react to short-term volatility are more likely to benefit from the positive returns of fixed income assets over time.. Alternatives to fixed income may carry unintended risks. Finding viable substitutes for bonds is sometimes easier said than done Fixed-income investors seeking to avoid the negative impact of rising interest rates may be tempted to reallocate assets to income-generating investments such as high-dividend stocks, real estate investment trusts (REITs), or opportunistic, unconstrained bond portfolios. hile these substitute investments can offer attractive return and diversification opportunities in their own right, they generally have risk profiles, concentrated exposures, or other characteristics that differ greatly from those of a traditional bond investment, making them potentially unsuitable alternatives. In addition, some of these asset classes have themselves benefited from the artificially low interest-rate environment that has prevailed since the onset of QE, and may also be susceptible to sharp losses when the Fed s asset purchases end. The benefits and risks of such alternatives are not identical to the characteristics of typical bond holdings. Investors need to consider whether and to what extent they should adjust their fixed-income allocations using these or other types of assets. Conclusions The prospect of higher interest rates is real, although the likelihood of extreme shifts leading to steep bond-market losses may be tempered by a lack of inflationary pressures, the ability of the U.S. economy to absorb at least a moderate rate increase, and the extent to which the market has already priced in rising rates. Against this backdrop, fixedincome strategies can differ substantially in the degree of protection they may offer in a rising rate environment. Investors who maintain diversified, actively managed exposure to a range of fixed-income securities over medium-term time frames will likely be better positioned to withstand the potential impact of rising interest rates than investors with index-like or more concentrated exposures. Due to the lack of viable fixed-income alternatives and uncertainty of market-timing strategies, investors are often better served by maintaining consistent, strategic exposure to fixed income over time rather than opportunistically rotating among equity, fixed income, and other asset classes. Moreover, asset classes intended to serve as substitutes for fixed income may themselves be vulnerable to risks resulting from the unwinding of QE. Investors who are inclined to reduce their overall fixedincome allocation because of interest-rate concerns should do so judiciously, positioning their remaining exposure with an emphasis on diversification, active management, and a long-term perspective. Despite the vulnerability of bond valuations to rising interest rates, we think fixed-income exposure can continue to play a useful role in our clients portfolios, if managed effectively. A fixed-income strategy that considers the issues and perspectives explored in this paper may provide the basis for navigating what will undoubtedly be a challenging environment. Visit us at for additional information about TIAA-CREF s fixed-income capabilities. This material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results. Investments in fixed-income securities are not guaranteed and are subject to interest rate, inflation, and credit risks. provides investment advice and portfolio management services to the TIAA-CREF group of companies through the following entities: Teachers Advisors, Inc., TIAA-CREF Investment Management, LLC, and Teachers Insurance and Annuity Association (TIAA ). Teachers Advisors, Inc., is a registered investment advisor and wholly owned subsidiary of Teachers Insurance and Annuity Association (TIAA). 1 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF), 7 Third Avenue, New York, NY 117 C9 81_7867 A167 (1/1)

interest-rate environment

interest-rate environment inter 14 TIAA-CREF Asset Management Documeent title on one or two Lifecycle lines in Funds Gustan in Book a rising 24pt interest-rate environment Elina Steinberg Director, Client Portfolio Management TIAA-CREF

More information

The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong

The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Investment Insights The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Kevin Lorenz, CFA, Managing Director, Lead Portfolio Manager of TIAA-CREF's High-Yield Fund

More information

How To Invest In High Yield Bonds

How To Invest In High Yield Bonds Investment Perspectives For high-yield bonds, market volatility can bring new opportunities Kevin Lorenz and Jean Lin, portfolio managers for TIAA-CREF High-Yield Fund Article Highlights: The decline in

More information

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110 April 2014 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for 24pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Portfolio

More information

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110 May 2015 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for 24pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Portfolio

More information

Understanding the causes and implications of a less liquid trading environment. Executive summary

Understanding the causes and implications of a less liquid trading environment. Executive summary Fall 2015 TIAA-CREF Asset Management Reduced Documeent liquidity: title A on new one reality or two for lines fixed-income in Gustan Book markets 24pt Understanding the causes and implications of a less

More information

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W. The diversification merits of high-yield bonds

Documeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W. The diversification merits of high-yield bonds April 01 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Co-portfolio

More information

CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing

CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing A Challenging Environment for Investors MOVING BEYOND TRADITIONAL FIXED-INCOME INVESTING ALONE For many advisors and

More information

Bond Fund Investing in a Rising Rate Environment

Bond Fund Investing in a Rising Rate Environment MUTUAL FUND RESEARCH Danette Szakaly Ext. 71937 Date Issued: 1/14/11 Fund Investing in a Rising Rate Environment The recent rise in U.S. Treasury bond yields has some investors wondering how to manage

More information

Pioneer Bond Fund. Performance Analysis & Commentary September 2015. Fund Ticker Symbols: PIOBX (Class A); PICYX (Class Y) us.pioneerinvestments.

Pioneer Bond Fund. Performance Analysis & Commentary September 2015. Fund Ticker Symbols: PIOBX (Class A); PICYX (Class Y) us.pioneerinvestments. Pioneer Bond Fund COMMENTARY Performance Analysis & Commentary September 2015 Fund Ticker Symbols: PIOBX (Class A); PICYX (Class Y) us.pioneerinvestments.com Third Quarter Review Pioneer Bond Fund s Class

More information

Yield Curve September 2004

Yield Curve September 2004 Yield Curve Basics The yield curve, a graph that depicts the relationship between bond yields and maturities, is an important tool in fixed-income investing. Investors use the yield curve as a reference

More information

Real estate: The impact of rising interest rates

Real estate: The impact of rising interest rates Fall 015 TIAA-CREF Asset Management Real estate: The impact of rising interest rates Overview TIAA-CREF Global Real Estate Strategy & Research Martha Peyton, Ph.D. Managing Director Edward F. Pierzak,

More information

Investing in a Rising Rate Environment

Investing in a Rising Rate Environment Investing in a Rising Rate Environment How Rising Interest Rates Affect Bond Portfolios By Baird s Private Wealth Management Research Summary With historically low interest rates and the unprecedented

More information

Impact of rising interest rates on preferred securities

Impact of rising interest rates on preferred securities Impact of rising interest rates on preferred securities This report looks at the risks preferred investors may face in a rising-interest-rate environment. We are currently in a period of historically low

More information

Fixed Income: The Hidden Risk of Indexing

Fixed Income: The Hidden Risk of Indexing MANNING & NAPIER ADVISORS, INC. Fixed Income: The Hidden Risk of Indexing Unless otherwise noted, all figures are based in USD. Fixed income markets in the U.S. are vast. At roughly twice the size of domestic

More information

The Case for a Custom Fixed Income Benchmark. ssga.com/definedcontribution REFINING THE AGG

The Case for a Custom Fixed Income Benchmark. ssga.com/definedcontribution REFINING THE AGG The Case for a Custom Fixed Income Benchmark ssga.com/definedcontribution REFINING THE AGG For decades, the Barclays US Aggregate Index (the Agg ) has been a popular benchmark for core bond investment

More information

Understanding Fixed Income

Understanding Fixed Income Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding

More information

Absolute return strategies offer modern diversification

Absolute return strategies offer modern diversification February 2015» White paper Absolute return strategies offer modern diversification Key takeaways Absolute return differs from traditional stock and bond investing. Absolute return seeks to reduce market

More information

Economic & Market Outlook

Economic & Market Outlook Monthly Portfolio Commentary December 31, 2015 Economic & Market Outlook Stocks rebounded in 2015 s fourth quarter, but provided little reward for the year as a whole. The S&P 500 Index recovered from

More information

Finding yield in dividendpaying

Finding yield in dividendpaying Market & Investment Insights Finding yield in dividendpaying stocks Mike Holbert, Portfolio Manager, Active Equities Article Highlights: Low interest rates have spurred investors to search for yield outside

More information

Rethinking fixed income. By Trevor t. Oliver

Rethinking fixed income. By Trevor t. Oliver 12 Rethinking fixed income By Trevor t. Oliver Summer/Fall 2012 The Participant : Issue 02 ssga.com/dc/theparticipant 13 The landscape for this asset class has changed. Our approach should too. Investors

More information

Fixed Income in a Rising Rate Environment

Fixed Income in a Rising Rate Environment Fixed Income in a Rising Rate Environment Market Commentary May 2016 SINCE THE FIRST FEDERAL FUNDS RATE INCREASE IN DECEMBER 2015, interest rates have generally declined. This counterintuitive result underscores

More information

Time to Invest in Short-Term Bonds?

Time to Invest in Short-Term Bonds? First Quarter 2010 Time to Invest in Short-Term Bonds? Executive Summary This paper outlines why now may be an opportune time to invest in short-term bonds. We believe short-term bonds offer: Less downside

More information

FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK

FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK 1 FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK By Michael McMurray, CFA Senior Consultant As all investors are aware, fixed income yields and overall returns generally have been

More information

Redefining Risk in Fixed Income

Redefining Risk in Fixed Income Investment Insights Series l April 2011 Redefining Risk in Fixed Income What most investors don t know about the new risks in fixed income Summary The world has changed for fixed income investors. The

More information

An actively managed approach for today s fixed-income markets

An actively managed approach for today s fixed-income markets Q3 2015 Putnam multi-sector fixed-income funds An actively managed approach for today s fixed-income markets D. William Kohli Michael V. Salm Paul D. Scanlon, CFA Putnam s three Co-Heads of Fixed each

More information

With interest rates at historically low levels, and the U.S. economy showing continued strength,

With interest rates at historically low levels, and the U.S. economy showing continued strength, Managing Interest Rate Risk in Your Bond Holdings THE RIGHT STRATEGY MAY HELP FIXED INCOME PORTFOLIOS DURING PERIODS OF RISING INTEREST RATES. With interest rates at historically low levels, and the U.S.

More information

Navigating Rising Rates with Active, Multi-Sector Fixed Income Management

Navigating Rising Rates with Active, Multi-Sector Fixed Income Management Navigating Rising Rates with Active, Multi-Sector Fixed Income Management With bond yields near 6-year lows and expected to rise, U.S. core bond investors are increasingly questioning how to mitigate interest

More information

BOND ALERT. What Investors Should Know. July 2013 WWW.LONGVIEWCPTL.COM 2 MILL ROAD, SUITE 105

BOND ALERT. What Investors Should Know. July 2013 WWW.LONGVIEWCPTL.COM 2 MILL ROAD, SUITE 105 BOND ALERT July 2013 What Investors Should Know This special report will help you understand the current environment for bonds and discuss how that environment may change with rising interest rates. We

More information

Bond Investing in a Rising Rate Environment

Bond Investing in a Rising Rate Environment September 3 W H I T E PA P E R Bond Investing in a Rising Rate Environment Contents Yields Past, Present and Future Allocation and Mandate Revisited Benchmark Comparisons Investment Options to Consider

More information

High Yield Bonds in a Rising Rate Environment August 2014

High Yield Bonds in a Rising Rate Environment August 2014 This paper examines the impact rising rates are likely to have on high yield bond performance. We conclude that while a rising rate environment would detract from high yield returns, historically returns

More information

Over a barrel: Causes and consequences of the fall in oil prices

Over a barrel: Causes and consequences of the fall in oil prices November 14, 2014 Over a barrel: Causes and consequences of the fall in oil prices Executive Summary The $30 fall in oil prices since July reflects greater U.S. supply as well as worries about a significant

More information

PROFESSIONAL FIXED-INCOME MANAGEMENT

PROFESSIONAL FIXED-INCOME MANAGEMENT MARCH 2014 PROFESSIONAL FIXED-INCOME MANAGEMENT A Strategy for Changing Markets EXECUTIVE SUMMARY The bond market has evolved in the past 30 years and become increasingly complex and volatile. Many investors

More information

Rethinking Fixed Income:

Rethinking Fixed Income: Rethinking Fixed Income: The Importance of Income and Flexibility January 2011 Executive Summary Over the past 30 years, fixed-income investors have benefited from one of the largest secular trends in

More information

Fixed Income Liquidity in a Rising Rate Environment

Fixed Income Liquidity in a Rising Rate Environment Fixed Income Liquidity in a Rising Rate Environment 2 Executive Summary Ò Fixed income market liquidity has declined, causing greater concern about prospective liquidity in a potential broad market sell-off

More information

Today s bond market is riskier and more volatile than in several generations. As

Today s bond market is riskier and more volatile than in several generations. As Fixed Income Approach 2014 Volume 1 Executive Summary Today s bond market is riskier and more volatile than in several generations. As interest rates rise so does the anxiety of fixed income investors

More information

Core bond funds know what you re investing in

Core bond funds know what you re investing in Core bond fixed income Wells Fargo Advantage Core Bond Fund February 2015 Core bond funds know what you re investing in Wells Fargo Advantage Funds Fixed-Income Team Just about every retirement plan participant

More information

Fixed Income in a Rising Rate Environment

Fixed Income in a Rising Rate Environment Fixed Income in a Rising Rate Environment With interest rates at historically low levels, fixed income investors have become increasingly concerned about rising rates and how their portfolios might be

More information

Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA

Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA Understanding Fixed Income Returns: Past, Present and Future by Stephen Kroah,CFA In today s economic environment, much discussion is centered around the impact of rising interest rates on fixed income

More information

Bond Fund of the TIAA-CREF Life Funds

Bond Fund of the TIAA-CREF Life Funds Summary Prospectus MAY 1, 2015 Bond Fund of the TIAA-CREF Life Funds Ticker: TLBDX Before you invest, you may want to review the Fund s prospectus, which contains more information about the Fund and its

More information

Back to Basics Investment Portfolio Risk Management

Back to Basics Investment Portfolio Risk Management Back to Basics Investment Portfolio Risk Management By Tom Slefinger, Senior Vice President, Director of Institutional Fixed Income Sales at Balance Sheet Solutions, LLC. Tom can be reached at tom.slefinger@balancesheetsolutions.org.

More information

NPH Fixed Income Research Update. Bob Downing, CFA. NPH Senior Investment & Due Diligence Analyst

NPH Fixed Income Research Update. Bob Downing, CFA. NPH Senior Investment & Due Diligence Analyst White Paper: NPH Fixed Income Research Update Authored By: Bob Downing, CFA NPH Senior Investment & Due Diligence Analyst National Planning Holdings, Inc. Due Diligence Department National Planning Holdings,

More information

The Search for Yield Continues: A Re-introduction to Bank Loans

The Search for Yield Continues: A Re-introduction to Bank Loans INSIGHTS The Search for Yield Continues: A Re-introduction to Bank Loans 203.621.1700 2013, Rocaton Investment Advisors, LLC Executive Summary With the Federal Reserve pledging to stick to its zero interest-rate

More information

Bond Market Insights October 10, 2014

Bond Market Insights October 10, 2014 Bond Market Insights October 10, 2014 by John Simms, CFA and Jerry Wiesner, CFA General Bond Market Treasury yields rose in September as prices fell. Yields in the belly of the curve (5- to 7-year maturities)

More information

The timeless (and timely) case for high-yield bonds

The timeless (and timely) case for high-yield bonds INCOME EATON VANCE Looking beyond traditional sources of yield MARCH 2016 TIMELY THINKING The timeless (and timely) case for high-yield bonds SUMMARY High-yield bonds occupy a special capital market niche:

More information

Impact of rising interest rates on equity markets

Impact of rising interest rates on equity markets Fall 2015 TIAA-CREF Asset Management Impact of rising interest rates on equity markets Executive summary Saira Malik, CFA Managing Director, Head of Global Active Equity Portfolio Management, TIAA-CREF

More information

Finding income and managing risk in a near-zero interest-rate environment

Finding income and managing risk in a near-zero interest-rate environment Aging Workforce Series Finding income and managing risk in a near-zero interest-rate environment William Martin, Head of Fixed-Income Portfolio Management TIAA-CREF Executive Summary Yields in traditional

More information

CHOOSING YOUR INVESTMENTS

CHOOSING YOUR INVESTMENTS CHOOSING YOUR INVESTMENTS FOR ASSISTANCE GO ONLINE For more information on your retirement plan, investment education, retirement planning tools and more, please go to www.tiaa-cref.org/carnegiemellon.

More information

Bond investing in a rising rate environment

Bond investing in a rising rate environment Bond investing in a rising rate environment Vanguard research November 013 Executive summary. Fears of rising rates have left many investors concerned that their fixed income portfolio is poised for extreme

More information

2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013

2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013 2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013 U.S. stock market performance in 2012 * +12.59% total return +6.35%

More information

SAVINGS GROWTH PLAN. Looking forward to new horizons. investment options

SAVINGS GROWTH PLAN. Looking forward to new horizons. investment options SAVINGS GROWTH PLAN SAVINGS GROWTH PLAN SAVINGS GROWTH PLAN Looking forward to new horizons. investment options 4 2020-2060 Portfolios BlackRock Table of Contents 6 Retirement Portfolio BlackRock 8 Short-Term

More information

INCOME IN ALL MARKETS COLUMBIA STRATEGIC INCOME FUND Class A COSIX Class C CLSCX Class R CSNRX Class R4 CMNRX Class R5 CTIVX Class Z LSIZX

INCOME IN ALL MARKETS COLUMBIA STRATEGIC INCOME FUND Class A COSIX Class C CLSCX Class R CSNRX Class R4 CMNRX Class R5 CTIVX Class Z LSIZX INCOME IN ALL MARKETS COLUMBIA STRATEGIC INCOME FUND Class A COSIX Class C CLSCX Class R CSNRX Class R4 CMNRX Class R5 CTIVX Class Z LSIZX NAVIGATING A CHANGING INTEREST RATE ENVIRONMENT Rise to the challenge

More information

Institutional Group Fixed Income for Nonprofits Strategies to consider in a rising rate, low return environment

Institutional Group Fixed Income for Nonprofits Strategies to consider in a rising rate, low return environment Institutional Group Fixed Income for Nonprofits Strategies to consider in a rising rate, low return environment Following over 30 years of a secular bull market in bonds, the recent sharp rise in interest

More information

Quarterly Asset Class Report Institutional Fixed Income

Quarterly Asset Class Report Institutional Fixed Income Quarterly Asset Class Report Institutional Presentation To: Presented By: canterburyconsulting.com September 30, 015 Role in the Canterbury Consulting recommends and communicates asset-class strategy with

More information

Investor Blind Spots in Short-Duration Bond Funds

Investor Blind Spots in Short-Duration Bond Funds leadership series INVESTMENT INSIGHTS October 213 Investor Blind Spots in Short-Duration Bond Funds Extraordinary central bank intervention that followed the financial crisis produced a prolonged environment

More information

Deutsche Floating Rate Fund

Deutsche Floating Rate Fund Taxable Fixed-Income 2 nd quarter 2014 Deutsche Floating Rate Fund Access a world of opportunities through the global resources of Deutsche Bank Canada United States Netherlands Belgium United Kingdom

More information

The Laddered Bond Portfolio. A Bond Strategy for Balancing Risk and Return

The Laddered Bond Portfolio. A Bond Strategy for Balancing Risk and Return The Laddered Bond Portfolio A Bond Strategy for Balancing Risk and Return Southwestern Kiva or Pueblo Ladders were used by New Mexico s Pueblo Natives to access multi-level adobe buildings, kivas and dwellings

More information

Building Your Retirement Portfolio

Building Your Retirement Portfolio Building Your Retirement Portfolio With the Help of TIAA-CREF 111075_L01.indd 1 ABOUT TIAA-CREF: For more than 90 years, we at TIAA-CREF have dedicated ourselves to helping those who serve the greater

More information

NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE. Core/Core Plus Investment Strategy

NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE. Core/Core Plus Investment Strategy NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE Core/Core Plus Investment Strategy December 31, 2014 Northern Trust Asset Management 50 South La Salle Street Chicago, Illinois 60603 northerntrust.com

More information

Diversify your global asset allocation approach by focusing on income and income growth.

Diversify your global asset allocation approach by focusing on income and income growth. Diversify your global asset allocation approach by focusing on income and income growth. Institutional investors have embraced global asset allocation (GAA) strategies as a way to pursue returns with low

More information

BOND MARKET PERSPECTIVES CROSSED WIRES KEY TAKEAWAYS LPL RESEARCH. June 23 2015 HAMMER FLAT: MIDYEAR BOND MARKET OUTLOOK

BOND MARKET PERSPECTIVES CROSSED WIRES KEY TAKEAWAYS LPL RESEARCH. June 23 2015 HAMMER FLAT: MIDYEAR BOND MARKET OUTLOOK LPL RESEARCH BOND MARKET PERSPECTIVES KEY TAKEAWAYS We continue to expect roughly flat bond returns for 2015, as the choppy market environment witnessed over the first half of 2015 continues. The challenging,

More information

Reducing bonds? Proceed with caution

Reducing bonds? Proceed with caution Reducing? Proceed with caution Vanguard research April 2013 Executive summary. Historically low yields from U.S. and recent cautions in the media about a potential bond bubble have led many investors to

More information

Investment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income?

Investment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income? Fixed income investments make up a large proportion of the investment universe and can form a significant part of a diversified portfolio but investors are often much less familiar with how fixed income

More information

CHOOSING YOUR INVESTMENTS

CHOOSING YOUR INVESTMENTS CHOOSING YOUR INVESTMENTS FOR ASSISTANCE CONTACT US TODAY FOR MORE INFORMATION, ADVICE OR HELP OPENING AN ACCOUNT, IT S EASY TO REACH US: BY PHONE Call us at 800 TIAA-CREF (800 842-2273) to speak with

More information

Unconstrained Fixed Income: One Asset Manager s Perspective HIMCO Webinar

Unconstrained Fixed Income: One Asset Manager s Perspective HIMCO Webinar Unconstrained Fixed Income: One Asset Manager s Perspective HIMCO Webinar October 1, 2014 14-0408 Unconstrained Fixed Income: One Asset Manager s Perspective Presenters Christopher Zeppieri, CFA Vice President

More information

NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE. Core/Core Plus Investment Strategy

NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE. Core/Core Plus Investment Strategy NORTHERN TRUST ACTIVE FIXED INCOME QUARTERLY UPDATE Core/Core Plus Investment Strategy SUMMARY: The Northern Fixed Income Fund (NOFIX)*and Northern Core Bond Fund (NOCBX)** both received four-star overall

More information

Managing Risk/Reward in Fixed Income

Managing Risk/Reward in Fixed Income INSIGHTS Managing Risk/Reward in Fixed Income Using Global Currency-Hedged Indices as Benchmarks In the pursuit of alpha, is it better to use a global hedged or unhedged index as a benchmark for measuring

More information

Fixed-income opportunity: Short duration high yield

Fixed-income opportunity: Short duration high yield March 2014 Insights from: An income solution for a low or rising interest-rate environment Generating income is a key objective for many investors, and one that is increasingly difficult to achieve in

More information

Making Sense of Market Volatility: Retirement Planning Strategies for the Everyday Investor. October, 2008

Making Sense of Market Volatility: Retirement Planning Strategies for the Everyday Investor. October, 2008 Making Sense of Market Volatility: Retirement Planning Strategies for the Everyday Investor October, 2008 1 Market Ups and Downs Recent news is full of anxiety-causing developments: Credit crunch Bank

More information

The case for global small- and mid-cap investing

The case for global small- and mid-cap investing International/ Global Equity Global equities white paper April 2014 The case for global small- and mid-cap investing Small- and mid-cap stocks, particularly those that are global, have provided compelling

More information

BlackRock Diversified Income Portfolio. A portfolio from Fidelity Investments designed to seek income while managing risk

BlackRock Diversified Income Portfolio. A portfolio from Fidelity Investments designed to seek income while managing risk BlackRock Diversified Income Portfolio A portfolio from Fidelity Investments designed to seek income while managing risk Fidelity Investments has formed a strategic alliance with BlackRock Investment Management,

More information

Why Consider Bank Loan Investing?

Why Consider Bank Loan Investing? Why Consider Bank Loan Investing? September 2012 Bank loans continue to increase in popularity among a variety of investors in search of higher yield potential than other types of bonds, with lower relative

More information

INTRODUCING THE WISDOMTREE WESTERN ASSET UNCONSTRAINED BOND FUND The First Truly Unconstrained Fixed Income ETF

INTRODUCING THE WISDOMTREE WESTERN ASSET UNCONSTRAINED BOND FUND The First Truly Unconstrained Fixed Income ETF WisdomTree Western Asset ETFs UNCONSTRAINED BOND FUND UBND For decades, declining interest rates have provided a tailwind for traditional fixed income strategies. Today, with yields near historic lows

More information

Documeent title on one or two lines in Gustan Book 24pt Commercial mortgages are HOT!

Documeent title on one or two lines in Gustan Book 24pt Commercial mortgages are HOT! TIAA-CREF Asset Management Documeent title on one or two lines in Gustan Book pt Commercial mortgages are HOT! Martha Peyton, Ph.D., Managing Director TIAA-CREF Global Real Estate, Strategy & Research

More information

Senior Floating Rate Loans

Senior Floating Rate Loans Senior floating rate loans have become a staple of the U.S. debt market and have grown from a market value of $126 billion in 2001 to $607 billion as of year-end 2011. 1 For over 20 years, managed senior

More information

Are Unconstrained Bond Funds a Substitute for Core Bonds?

Are Unconstrained Bond Funds a Substitute for Core Bonds? TOPICS OF INTEREST Are Unconstrained Bond Funds a Substitute for Core Bonds? By Peter Wilamoski, Ph.D. Director of Economic Research Philip Schmitt, CIMA Senior Research Associate AUGUST 2014 The problem

More information

Why Anfield s Universal Fixed Income Fund?

Why Anfield s Universal Fixed Income Fund? Why Anfield s Universal Fixed Income Fund? Disclosure Investors should carefully consider the investment objectives, risks, charges and expenses of the Anfield Universal Fixed Income Fund. This and other

More information

Impact of QE on Fixed Income

Impact of QE on Fixed Income Impact of QE on Fixed Income David Greene, Client Portfolio Manager Pioneer Investments Unconstrained Approaches Potential returns mean investors have to be more opportunistic 5 0 Expected return based

More information

A GUIDE TO FLOATING RATE BANK LOANS:

A GUIDE TO FLOATING RATE BANK LOANS: Contact information: Advisor Services: (631) 629-4908 E-mail: info@catalystmf.com Website: www.catalystmf.com A GUIDE TO FLOATING RATE BANK LOANS: An Attractive Investment for a Rising Interest Rate Environment

More information

Arizona State Retirement System Investment Committee Fixed Income Asset Class Review

Arizona State Retirement System Investment Committee Fixed Income Asset Class Review Arizona State Retirement System Investment Committee Fixed Income Asset Class Review June 22, 2015 EXECUTIVE SUMMARY U.S. Equity Arizona Asset State Class Retirement Overview System Fixed Income Asset

More information

Corporate Bonds - The Best Retirement Investment?

Corporate Bonds - The Best Retirement Investment? . SIPCO Corporate Bond Strategy The principles of SIPCO believe that bond investors are best served by primarily investing in corporate bonds. We are of the opinion that corporate bonds offer the best

More information

FIXED INCOME STRATEGY HIGHLIGHTS OCTOBER, 2015

FIXED INCOME STRATEGY HIGHLIGHTS OCTOBER, 2015 FIXED INCOME STRATEGY HIGHLIGHTS OCTOBER, 2015 IN BRIEF: The U.S. Fixed Income Markets During the third quarter, the U.S. economy showed continued progress coupled with a decline in the U.S. unemployment

More information

Liquidity Tiering for Higher Yields in the Tax-Free Market

Liquidity Tiering for Higher Yields in the Tax-Free Market January 2013 Liquidity Tiering for Higher Yields in the Tax-Free Market In today s low-yield environment, investors need a fresh approach to managing their portfolios for higher income. Liquidity tiering

More information

FIXED INCOME STRATEGIES FOR A RISING INTEREST RATE ENVIRONMENT

FIXED INCOME STRATEGIES FOR A RISING INTEREST RATE ENVIRONMENT FIXED INCOME STRATEGIES FOR A RISING INTEREST RATE ENVIRONMENT John Donovan, Head of Fixed Income and Trading As the Federal Reserve and other central banks wind down their fiscal stimulus programs, we

More information

Fixed Income Investing: What s an Investor to Do?

Fixed Income Investing: What s an Investor to Do? INSIGHTS Fixed Income Investing: What s an Investor to Do? July 2012 203.621.1700 2012, Rocaton Investment Advisors, LLC Executive Summary As interest rates have fallen steadily over the past 20 years,

More information

Opportunities in credit higher quality high-yield bonds

Opportunities in credit higher quality high-yield bonds Highlights > > Default rates below the long-term average > > Valuations wide of historical average in BB and B rated credit > > Despite sluggish economy, high yield can still perform well > > High yield

More information

Moving Forward With the Normalization of Yields

Moving Forward With the Normalization of Yields Moving Forward With the Normalization of Yields April 8, 2014 by Scott Mather, Michael Story of PIMCO One response to yield normalization is to consider retaining core bonds and diversifying the specific

More information

Investment Risk: Don t Avoid It Manage It!

Investment Risk: Don t Avoid It Manage It! Investment Risk: Don t Avoid It Manage It! Today s Agenda What is risk? Types of investment risk Investments that carry each type of risk Match personal goals with investments and risk levels Risk management

More information

INTEREST RATES: WHAT GOES UP MUST COME DOWN

INTEREST RATES: WHAT GOES UP MUST COME DOWN 3 INTEREST RATES: WHAT GOES UP MUST COME DOWN John M. Petersen Melvin Mark Capital Group, LLC What an interesting time to be asked to write something about interest rates! Our practice emphasis is commercial

More information

Bank Loans: A Rate-Hedging Strategy For Today s Portfolios

Bank Loans: A Rate-Hedging Strategy For Today s Portfolios INVESTMENT NOTE Bank Loans: A Rate-Hedging Strategy For Today s Portfolios May 2013 Bank Loans: A Rate-Hedging The Versatitily Strategy of Short For Duration Today s High Portfolios Yield 1 Over the past

More information

ALLOCATION STRATEGIES A, C, & I SHARES PROSPECTUS August 1, 2015

ALLOCATION STRATEGIES A, C, & I SHARES PROSPECTUS August 1, 2015 ALLOCATION STRATEGIES A, C, & I SHARES PROSPECTUS August 1, 2015 Investment Adviser: RidgeWorth Investments A Shares C Shares I Shares Aggressive Growth Allocation Strategy SLAAX CLVLX CVMGX Conservative

More information

Wells Fargo Advantage Dow Jones Target Date Funds SM

Wells Fargo Advantage Dow Jones Target Date Funds SM Wells Fargo Advantage Dow Jones Target Date Funds SM Annual Report February 28, 2015 Wells Fargo Advantage Dow Jones Target Today Fund SM Wells Fargo Advantage Dow Jones Target 2010 Fund SM Wells Fargo

More information

How quantitative easing impacts government bond markets and the duration model

How quantitative easing impacts government bond markets and the duration model WHITE PAPER January 2014 For professional investors How quantitative easing impacts government bond markets and the duration model Johan Duyvesteyn Martin Martens Olaf Penninga How quantitative easing

More information

How to manage your fixed-income investments when interest rates rise

How to manage your fixed-income investments when interest rates rise How to manage your fixed-income investments when interest rates rise April 2015 Begin by taking a thoughtful approach. Consider total return and not just current yields. Make sure you maintain portfolio-wide

More information

LONG-TERM INVESTMENT PERFORMANCE

LONG-TERM INVESTMENT PERFORMANCE LONG-TERM INVESTMENT PERFORMANCE Source: Created by Raymond James using Ibbotson Presentation Materials 2011 Morningstar. All Rights Reserved. 3/1/2011 Used with permission. TYPES OF ASSET CLASSES Stocks

More information

Bond Mutual Funds. a guide to. A bond mutual fund is an investment company. that pools money from shareholders and invests

Bond Mutual Funds. a guide to. A bond mutual fund is an investment company. that pools money from shareholders and invests a guide to Bond Mutual Funds A bond mutual fund is an investment company that pools money from shareholders and invests primarily in a diversified portfolio of bonds. Table of Contents What Is a Bond?...

More information

Active vs. Passive in Fixed Income Funds

Active vs. Passive in Fixed Income Funds Active vs. Passive in Fixed Income Funds White Paper February 2015 Not FDIC Insured May Lose Value No Bank Guarantee For Not financial FDIC Insured professional May Lose use Value only. Not Bank for inspection

More information

Taxable Fixed Income Outlook: Waiting for Those Rising Rates

Taxable Fixed Income Outlook: Waiting for Those Rising Rates Taxable Fixed Income Outlook: Waiting for Those Rising Rates Market Commentary Fourth quarter 2014 MOST INVESTORS UNDERSTAND THAT INTEREST RATES ARE UNPREDICTABLE. But we suspect few believed rates could

More information

The Impact of Interest Rates on Real Estate Securities

The Impact of Interest Rates on Real Estate Securities The Impact of Interest Rates on Real Estate Securities The challenge for real estate securities investors is determining how monetary policy and interest rates affect prices and returns. Highlights Not

More information