Since the global financial crisis in 2008, investors have been searching for yield in fixed income markets around the globe, turning to fixed income sectors like high yield and emerging market debt to meet that need. But as the market continues to trudge forward, yields in these sectors continue to diminish leading investors to reach to riskier and more illiquid assets or extend portfolio duration…not necessarily good ideas. Last week I released a paper entitled, Stop trying to meet your income needs solely with yield – it’s time for total return. In the piece, I look at the moves in the market that have gotten us to where we are today. I also highlight the benefits, considerations, and investment solutions that come from focusing on total return. And I explain how those solutions can fit into an existing portfolio line-up.
Putting a total-return focus into action could provide several benefits:
- Incorporating a total-return focus can allow a portfolio to shed some interest-rate risk that has built up in the process of adding duration to gain yield.
- The shift could add some liquidity back into a portfolio. With the quest for yield leading many investors towards less liquid sectors that don’t pay returns commensurate with that reduced liquidity, a shift toward total-return focus could also allow a portfolio to gravitate back to more liquid fixed income sectors.
- The shift could also allow the investor to benefit from increased sector dispersion.
Check out the full piece here.
The information in this article has been derived from sources believed to be accurate as of June 2014. Information derived from sources other than Principal Global Investors or its affiliates is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity.
The information in this article contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The general information it contains does not take account of any investor’s investment objectives, particular needs or financial situation, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. All expressions of opinion and predictions in this document are subject to change without notice.
Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions in this article. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security.
Links contained in some blog posts may take you to third-party sites and Principal Global Investors makes no guarantees to the accuracy of the information provided.