Adding Alternatives: Why Satellite Fixed Income in Your Portfolio Makes Sense

KEY TAKEAWAYS

  • While the Fed has indicated that more
    interest rate hikes are likely on the horizon
    heading into next year, the fact of the matter
    is that interest rates have been historically
    low over the past decade.
  • In their quest for higher bond yields,
    investors have taken on more risk to achieve
    the same target returns compared to more
    than a decade ago.
  • The big question is whether investors are
    being adequately compensated for riskier
    investments, compared to “safer bets” such
    as investment grade bonds.
  • We believe that actively-managed, satellite
    fixed income investments can potentially
    enhance a portfolio’s returns, while
    balancing risks and returns.

Adding Alternatives:
Why Satellite Fixed Income in Your Portfolio Makes Sense

Since 2015, interest rates in the United States have been slowly creeping upward, rising from the near zero interest rate environment set by the U.S. Federal Reserve (Fed) on the heels of the 2008-2009 Great Recession. While the Fed has indicated that more interest rate hikes are likely on the horizon heading into next year, the fact of the matter is that interest rates have been historically low over the past decade. During this period, bond funds have not fared well. Consequently, in their quest for higher bond yields, investors have taken on more risk to achieve the same target returns compared to more than a decade ago.

Accordingly, we believe that actively-managed, satellite fixed income investments can potentially enhance a portfolio’s returns, while balancing risks and returns. These investments can help to offer noncorrelated returns with the potential of protecting against interest rate increases, while at the same time offering investors access to markets that are not contained in traditional fixed income investments, as represented in the Bloomberg Barclays U.S. Aggregate Index (the AGG). Satellite investment products include the following: Commercial Mortgage Backed Securities (CMBS), Real Estate Investment Trusts (REITs), floating rate securities, shorter duration securities, as well as access to alternative asset classes and asset-backed securities.

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8355-NLD-10/23/2018

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