white papers

Why Accept More Risk for Comparable Yield?

As interest rates attract investors back to fixed income, investors must consider the risk and return tradeoff in their allocation and ensure they are adequately paid for risks, particularly duration. Many assume that longer-duration strategies will offer greater yield and total return potential than intermediate-term strategies. However, analysis of current valuations and historical performance patterns tells a different story.

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Correlation: The Importance of Quality in Fixed Income Allocations

In portfolio construction, understanding how each investment or asset class complements one another can be your most valuable ally. Correlation can be analyzed between asset classes but also between segments of the same asset class. Within fixed income, for instance, credit quality will often dictate the relationship between a bond portfolio and the equity market.

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

In an environment where short-term yields are the same or higher than long-term yields, many investors are replacing traditional bond investments with cash. While both financial instruments are perceived to be “safe,” investors should consider two important factors when determining which is best for their portfolio: total return potential and reinvestment risk.

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Yield Curve Scenario Analysis: Using Duration and Bond Math to Measure Return Potential

The recent challenges faced by bond investors stem from a prolonged period of low interest rates, followed by a significant shift in Federal Reserve policy. The largest repricing of fixed income assets in generations resulted in deep negative returns. Now, with the 10-year Treasury yield nearing 5% and the Fed suggesting that rates may be reaching their peak for this cycle, investors are curious about future bond market returns. To demonstrate the total return potential in fixed income, we analyze interest rate sensitivity.

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Liquidity Risk

Imagine a crowded room with just one exit. If everyone suddenly had to leave, those close to the exit would be fine, but it would be chaotic for others. This is similar to bond liquidity, which is like the available exits. When bonds are highly liquid, investors can smoothly come and go without a hitch. But when liquidity is low, it's like many investors trying to exit through one door. This article delves into bond market liquidity and its effects.

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Municipal Bonds

Municipal bonds make up nearly 10% of the investment grade bond market. The $4 trillion in municipal debt is issued by government entities to cover expenses and finance projects that significantly benefit the public. This paper provides an overview of Municipal Bonds, highlighting their tax advantages, illustrating with examples, and exploring their intricacies.

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Credit Analysis

History has taught us that even highly-rated bonds can quickly experience deteriorating credit quality and wreak havoc on a portfolio. Naturally, credit quality becomes a focus in weakening market conditions, but the importance of credit research in all market conditions must be considered.

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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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