A Fixed Income Predicament: The Case for a Flexible, Active Approach
Low Yield Landscape Amid Interest Rate Unknowns Call for Active Bottom-Up Security Selection Through the Credit Cycle
Highlights of the discussion include:
- Yields are currently close to all-time lows, presenting a challenging environment for fixed income investors and a compelling case for active management.
- While quantitative easing is an important tool for the Fed to spur economic activity, it may lead investors to modify their approach.
- The Full Discretion Team’s active, go-anywhere style aims to tilt towards credit through the cycle.
- The Fed’s policy of active inflation targeting appears to suggest that when they start to raise interest rates, they may do so later than they have historically. This could lead to a steeper yield curve, a higher terminal fed funds rate, and potentially higher rates.
- Repeatable and active bottom-up security selection uncovers attractive investments based on the current economic environment and stage of the credit cycle.
Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity.
This material is provided for informational purposes only and should not be construed as investment advice. This material may not be redistributed, published, or reproduced, in whole or in part. The views and opinions expressed are as of September 8, 2021 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.
Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.
Quantitative Easing (QE) refers to monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
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