Meeting Your Income Needs with Total Return Fixed Income

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.


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