Diversifying Fixed Income Exposure with Non-Traditional Income

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.

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Michael Schoonover, COO & Portfolio Manager
Michael Schoonover, COO & Portfolio Manager
Michael Schoonover is Chief Operating Officer of Catalyst Capital Advisors LLC, Catalyst International Advisors LLC and Rational Advisors, Inc. He is an experienced financial professional having worked in various portfolio management, operations management, and trust officer roles. He serves in various executive roles for U.S. registered investment advisers and marketing and consulting companies in the investment management industry. He is President of Mutual Fund Series Trust, President of Mutual Fund & Variable Insurance Trust, and President of Strategy Shares. Mr. Schoonover has a Bachelor of Science degree in biochemistry from the University of Michigan and a Master of Business Administration degree with high distinction from the University of Michigan.

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