Traditionally, fixed income has played four key roles within investors’ broader portfolios, providing:
- Income to meet investors’ short- and long-term obligations
- Return, seeking to enhance the total return of the overall portfolio
- Liquidity to meet cash flow needs and provide the overall portfolio flexibility in asset allocation
- Diversification for the overall portfolio to mitigate loss of capital at times of market stress
For many years, traditional bond portfolios delivered all of these objectives as falling yields generated both income and total return, while still providing the liquidity and diversification investors sought. It will be much more difficult for traditional bond portfolios to fulfill these roles going forward. Yields have fallen so much — in many cases, into negative territory — that income no longer meets most investors’ requirements, while forward returns are likely to be much lower, and potentially even negative. Meanwhile, central bank asset purchases have contributed to a decline in both secondary-market liquidity and the diversification potential of fixed income.
In this challenging environment, we offer outcome-oriented ideas — many of them with the flexibility to adapt to evolving market conditions — to help your bond portfolio continue delivering the benefits that fixed income has traditionally provided. These approaches can be used separately or in combination to meet your specific objectives, even when interest rates are rising or the credit cycle is deteriorating. To discuss further, please contact your Wellington Management representative.