Catalyst Funds
Rational Funds
Strategy Shares
Many bond portfolios consist of investments that replicate the Bloomberg Barclays U.S. Aggregate Bond Index (the “Agg”), which does not include about two-thirds of the investable fixed income space. These bond portfolios leave many investors under-exposed to the broader fixed income universe and with concentrated risk exposure to rising interest rates. By diversifying from a bond portfolio that replicates the Agg to a diversified fixed income portfolio, investors would have historically recognized a higher yield to better meet their cash flow needs. Moreover, since the end of 2012, the combination of many fixed income indexes historically demonstrated higher returns and lower risk than the Agg.
In this case study, we start by presenting the performance characteristics of various fixed income assets class indexes and a diversified portfolio of those asset classes. By comparing these to the Agg, we demonstrate the historical benefits diversification had for fixed income. We then analyze the risks that Agg-like investors are taking in today’s environment and explain how a nontraditional income approach can help mitigate some of these risks.
