• RankiaPro Spain
Menu
  • RankiaPro Spain
SUBSCRIBE
Search
Close
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    COVER IMAGE WEB POSTS (4)
    Insights

    Regime change calls for style balance

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    COVER IMAGE WEB POSTS (5)
    Appointments

    DWS: Sebastian Krämer-Bach to take over Communications & Marketing from Adib Sisani

  • Magazine
    RANKIAPRO EUROPE
    RANKIAPRO EUROPE
    RANKIAPRO IBERIA
    RANKIAPRO IBERIA
  • Events
    RANKIA FUNDS EXPERIENCE
    CONFERENCE CALLS
    CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Menu
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    COVER IMAGE WEB POSTS (4)
    Insights

    Regime change calls for style balance

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    COVER IMAGE WEB POSTS (5)
    Appointments

    DWS: Sebastian Krämer-Bach to take over Communications & Marketing from Adib Sisani

  • Magazine
    RANKIAPRO EUROPE
    RANKIAPRO EUROPE
    RANKIAPRO IBERIA
    RANKIAPRO IBERIA
  • Events
    RANKIA FUNDS EXPERIENCE
    CONFERENCE CALLS
    CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Search
Close
Search
Close

Home | How should investors approach selection and construction of fixed income portfolios?

How should investors approach selection and construction of fixed income portfolios?

This is the worst start of the year for bonds. Therefore, investors need to learn a different and more active approach.
Jon Mawby

Head of Investment Grade Credit at Pictet AM

  • 19 April 2022

The era of unconventional monetary policy, with central banks deliberately keeping interest rates below the rate of inflation, in order to “save” markets, has pushed bond yields to exceptionally low levels. The result has been much less pronounced credit and economic cycles and higher volatility.

In fact, the unprecedented monetary and fiscal stimulus following the Great Global Financial Crisis and Covid-19 pandemic has distorted global fixed income markets and altered investors’ attitude towards risk. Another side effect is the increased correlation of traditional credit markets with equities, which reduces the margin for error. Interestingly, more recently, bond volatility has skyrocketed even with volatility relatively stable in equities, an anomalous condition for which few fixed income investors were prepared.

But this era is coming to an end amid rising global inflation. In addition, more and more passive products are available, and, as more investors enter and exit the market simultaneously, volatility increases. Add to this is a huge deterioration in credit quality of issuing companies. Another significant risk is a failure in monetary or fiscal policy. In addition, investors worry the end of decades of desinflation.

Thus, volatility, which has increased considerably in recent weeks, is not going away. This suggests that are no longer the safe haven they were, with significant risks for those who hold longer-term debt, including pension funds.

So the return characteristics of fixed income assets will not be as benign as in the past four decades. But corporate debt must be an important part of any diversified portfolio, as can provide attractive opportunities throughout the cycle. Investors therefore need to be aware of the serious problems that are accumulating and rethink the role of fixed income in their portfolios. In this regard, Charles Ellis, in his 1998 book, Winning the Loser’s Game, observed that successful athletes tend to be defeated by those with superior abilities, but fans are defeated by their bad game, unforced errors. By extension, investors should avoid mistakes, such as unnecessarily chasing yields to maturity.

Thus, it is possible to reduce risk when valuations are tight and take advantage of opportunities to add it when other investors fear. This value-focused mindset provides the strongest foundation on which to navigate volatility cycles. It has been the case in the pandemic. By March 2020 many investors with high-yield debt suffered significant losses in the worst of the crisis, unlike those who had taken steps to take advantage of the value offered by good quality credit. The requirement is to be agile enough to acquire good quality assets with attractive profitability, not correlated with other assets.

Today, interestingly, investment-grade credit seems particularly risky. This is because asset allocation decisions in this part of the market have very little room for error, as there is a high proportion of investment-grade credit on central banks’ balance sheets, which can affect their liquidity. Although there may be entry points in national champion issuers and sector leaders, certain “rising stars”, i.e. companies with high-yield debt that are deleveraging, whose financial prospects have improved, offer much more attractive prospects in relation to risk.

In any case, it is important to remain flexible, with exposure to less inflation-sensitive assets, such as variable-rate debt and certain convertible bonds.

  • bonds, Fixed Income, Investment, Investment opportunities, portfolio construction

Related Post

Frontier markets outside
  • Fixed Income, Insights

Frontier bonds – thoughts of an ageing bondie….

The market has seen significant growth over the past few years, with total market capitalisation now standing at $865 billion, making for a more liquid and diversified market.
Guerra Ucrania Rusia destacada
  • Insights

The long shadow of the war

The global economy and the corporate sector are currently being hit by a long list of problems: the ongoing pandemic, fragile value chains, high inflation rates, monetary tightening, and the war in Ukraine.
Chips semiconductores tecnología destacada
  • Launches, News

Goldman Sachs AM launches emerging markets-focused fund excluding China

The Portfolio will be managed by Goldman Sachs Asset Management’s 80-person Fundamental Equity team, using a rigorous, bottom-up investment approach.
NEWSLETTER
If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now to our newsletter.
Subscribe

Last Tweets

5 Aug

💼 @DWS_Group: Sebastian Krämer-Bach to take over Communications & Marketing from Adib Sisani

...https://en.rankiapro.com/dws-sebastian-kramer-bach-marketing/

5 Aug

🧐 Germany could go into recession

https://en.rankiapro.com/germany-recession/

5 Aug

📣 OPEC+ raises oil production by 100,000 barrels per day, the lowest increase in history

...https://en.rankiapro.com/opec-raises-oil-production/

4 Aug

💼 @PIMCO Hires @RichardClarida as Managing Director and Global Economic Advisor

...https://en.rankiapro.com/pimco-hires-richard-clarida/

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • Email: [email protected]
  • Phone: (+34) 963 386 976
  • Mobile: (+34) 640 308 023

Newsletter

If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now.

Subscribe

All rights reserved © 2003 – 2021 Rankia S.L.

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • Email: [email protected]
  • Phone: 963 386 976 – 601 302 692

All rights reserved © 2003 – 2021 Rankia S.L.

Manage Cookie Consent
To provide you the best experience on our website, we use technologies like our own and third-party cookies for analytical purposes and to store device information. Consenting to these technologies will allow us to process data such as browsing behaviour or unique identifiers on this site. Not consenting or withdrawing consent may adversely affect certain features and functions.

To learn more, please read our Cookie Policy and Privacy Statement.
Functionality or Personalisation Cookies Always active
These cookies are necessary for the website to function or for the unique purpose of transmitting a communication over an electronic communications network, and cannot be disabled on our systems. Usually they are set up to respond to actions made by you to receive services, such as adjusting your privacy preferences or filling out forms. You can set your browser to block or alert you to the presence of these cookies, but some parts of the website will not work. These cookies allow the website to provide better functionality and personalisation. They may be set by us or by third parties whose services we have added to our pages. If you do not allow these cookies some of our services will not work properly.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics Cookies
These cookies allow us to count traffic sources in order to measure and improve the performance of our website. Storage or technical access which is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing Cookies
These cookies may be site-wide, placed by our advertising partners. These third parties may use them to create a profile of your interests and show you relevant adverts on other sites. If you do not allow these cookies, you may receive less targeted advertising.
Manage options Manage services Manage vendors Read more about these purposes
Cookie Settings
{title} {title} {title}
  • RankiaPro Spain
Menu
  • RankiaPro Spain
Menu
  • Home
  • Insights
    • Equities
    • ESG
    • ETF
    • Fixed Income
    • Interviews
    • Market Outlook
  • News
    • Appointments
    • Asset Managers
    • Launches
  • Magazine
    • RankiaPro Europe
    • RankiaPro Iberia
  • Events
    • Rankia Funds Experience
    • Online Events
    • RankiaPro Meetings
  • Podcast
  • MIFIDII Training

Follow us on social media

Linkedin Twitter Youtube Flickr

NEWSLETTER

Subscribe

Book now

How should investors approach selection and construction of fixed income portfolios?