To constrain or not constrain?

January 4, 2017

Fixed income allocations continue to be a major question in client portfolios. Do you continue to hold traditional long term bonds that will price deteriorate as rates rise with the hopes that clients will be able to hold them to maturity, or do you layer in differentiating bond funds that generate returns through multiple asset classes? Bloomberg wrote:

Donald Trump’s election has reignited the prospects for inflation and growth both in the U.S. and abroad, which will likely lead to higher interest rates and spell the end of the bond market’s three-decade Bull Run.

And that will favor funds that can go wherever the highest returns are — without constraints on maturity, geography or even credit quality.

The buy and hold methodology gives you reliable income flows with the possibility of price deterioration as rates rise. While the multi asset class funds give you more ways to protect your downside and generate upside, which comes with higher volatility and ever-changing sector allocations.

It is our belief that the ability to move between sector allocations will be key moving forward into 2017 as the world continues to change. Unlike most unconstrained bond funds however that shy away from long term bonds, we believe that long Treasuries, at times, are a valuable holding.  Our Tactical Fixed Income strategy can hold up to 40% in long term government exposure, along with the ability to hold convertible bonds, short-term Treasuries, emerging market debt, TIPs, high yield and Investment grade Corporates.

If you would like more information on our fixed income strategy please reach out to Andyh@dorseymm.com.

Dorsey, Wright & Associates, LLC, a Nasdaq Company, is a registered investment advisory firm.  Neither the information within this article, nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This article does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.  Past performance, hypothetical or actual, does not guarantee future results. In all securities trading there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives.  Advice from a financial professional is strongly advised.

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