Market Insights from the Bramshill Investments Team.

Risk and Reward in Fixed Income Investments: Low Yield and Rising Duration

Posted by Stephen Selver on September 06, 2017

Bloomberg Chart.png

The above chart gives you a good idea of one the reasons we think the way we do at Bramshill Investments. As you probably noticed, the yield on the Bloomberg Barclays Aggregate Bond Index (AGG) has come down substantially over the last 20 years. Yet, at the same time, the benchmark’s duration (risk) has moved in the opposite direction and continues to rise. This situation reflects an increasingly asymmetrical risk profile and the risk reward here is certainly not in investors’ favor.

If you are investing in passive or index-oriented AGG strategies, you find yourself in an interesting position. Unless you are 100% convinced there is no growth, you may have a decent chance of losing 5 to 7% in principal if rates rise here in a pretty quick order—which is what we think is likely to happen in the next six months.

For RIAs with an overweight to passive bond strategies, diversifying that allocation with a tactical strategy offering low correlation may help protect against future drawdowns. Although we are active fixed income managers, we do acknowledge that there are times when an overweight to passive bond strategies makes sense—this, however, does not seem to be that time.

WE COVERED THIS TOPIC DURING OUR 2017 Q2 WEBINAR. Watch the replay here. 



Stephen_Selver.jpgStephen Selver is the CEO at Bramshill Investments, an asset management firm specializing in absolute return solutions within fixed income and income producing assets.  Click here to view his bio and other team members of Bramshill Investments.

This commentary is provided by Bramshill Investments, LLC for informational purposes only and may contain information that is not suitable for all investors. Certain views and opinions expressed herein are forward-looking and may not come to pass. Investing involves risk, including the potential loss of principal. Past performance may not be indicative of future results, which are subject to various market and economic factors. No statement is to be construed as an offer to sell or a solicitation of an offer to buy securities, or the rendering of personalized investment advice.

Topics: From the Desk of Stephen Selver, Stats, Charts and Graphs