white papers

Cash and Money Market Funds vs. Bonds: Which is Better?

Cash–including money market funds, high-yield savings accounts, and short CDs–and bonds are all perceived to be relatively “safe” investments, but differ in terms of their risk level and return potential. With some cash accounts yielding as much or more than bonds, some investors may be questioning which asset is better.

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Opposite Ends of Value: The Hidden Risks in Value Indexing

Morningstar’s push years ago to get our industry thinking in terms of the nine style boxes continues to provide a framework for differentiating investment options. However, if you dig deeper, it’s far more complex than just the nine style boxes. The constituents of a single style box can present vastly different investment prospects. This white paper proposes a style spectrum and discusses hidden risks in value indexing.

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Bond Concepts Series

Learn the nuances of fixed income investing, including the risks, opportunities, and investment styles.

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Why Bonds Now?

Traditionally, fixed income has played three important roles in an asset allocation: principal preservation, steady income, and risk reduction. After pandemic-induced monetary and fiscal stimulus, the appeal of bonds had diminished some. The ability to preserve principal remained intact, but low yields meant that income was not keeping up with inflation and the prospect of a rising rate environment meant elevated interest rate risk with limited downside protection. Today, these key attributes of bonds have returned, and investors can again expect their fixed income allocation to fulfill its traditional role in a portfolio.

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Yield To Maturity (YTM): The Yield That Matters

In fixed income investing, there are several different ways to measure an individual bond’s ability to produce income. Three of the most often cited measures are a bond’s coupon rate, current yield, and yield to maturity. Each measure has its place, but which matters the most?

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Active Management of Bond Risks

Building a bond portfolio with a desired risk-to-reward profile is more complex than simply buying bonds and holding them to maturity. Understanding the risks in fixed income can help an investor avoid pitfalls while optimizing opportunities in pursuit of long-term goals. An investor must determine the maturities, structure, sectors, and credit qualities appropriate for a given risk tolerance and consider how the bonds fit in an overall portfolio.

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Interest Rate Risk: Understanding Duration and Convexity

Most people look at the maturity of a bond to gauge the security’s risk. Maturity, however, only looks at the time until repayment of principal. To accurately measure a security’s risk, both principal and coupon payments must be considered. The use of two metrics better defines a security’s risk: Duration and Convexity.

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The Power of Dynamic Asset Allocation

Diversification plays an important role in investing and the implementation of diversification within a portfolio can be a powerful tool that mitigates risk. However, diversification itself may not always be enough to achieve an investor’s goals and, in some instances, can even stand in the way. We believe a dynamic approach to portfolio construction that improves upon traditional asset allocation methodologies can offer better risk-adjusted returns.

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