Unconventional times may call for non-traditional strategies.

After nearly 30 years of declining interest rates created a prolonged bull market in bonds, one in which traditional fixed-income strategies prospered, times have changed.

In the nine years since the global financial crisis, conditions have frustrated fixed-income investors seeking both income and stability. After interest rates bottomed out and central banks’ programs of bond purchases tapered off, bond prices continued to drop, either constraining or negating the return of most traditional fixed-income strategies.

“When advisors come to us for consultation, it’s generally about the total portfolio, so our work involves asset allocation,” says Patrick Nolan, a portfolio strategist with the BlackRock Portfolio Solutions team. “We consistently hear now that it’s bonds that are making advisors pull their hair out.”

So it could be that advisors now find fixed-income solutions for their clients in unconstrained bond strategies, especially as rates rise. Unconstrained bond funds are enticing because they allow their managers to hedge against interest rate risk. Thus far, the Federal Reserve has raised rates six times since the global financial crisis.

Guggenheim Investments believes the Fed will continue with additional rate hikes to keep the economy from overheating, says Steve Brown, the firm’s director of total return portfolio management. Guggenheim believes the federal funds rate will rise to between 3.25% and 3.5% by the end of 2019.

“Our view on monetary policy is also more hawkish than the market,” Brown says. “The market continues to underprice the risk that the Fed will move faster. We foresee three more hikes this year, and up to four next year, which is two to three more than the market is predicting. That informs our duration positioning.”

Brown is the co-manager of the Guggenheim Macro Opportunities Fund (GIOIX), which held approximately $7 billion in assets as of May 4, according to Morningstar, and boasted five-year average annualized returns of 3.92%. It carries a 95 basis point expense ratio.

Guggenheim macro attempts to manage interest rate risk by looking at macroeconomic factors to decide its risk tolerance and by using the bottom-up analysis of individual bonds to select exposures. Currently, Brown and his team favor asset-backed securities and non-agency mortgage-backed securities.

While the Fed says it is committed to only two more rate increases for 2018, for a total of three, many economists and managers anticipate a fourth increase this year.

Elsewhere in the world, interest rates should remain low, says Rick Rieder, who oversees more than $1.8 trillion as global chief investment officer of fixed income for BlackRock. “Global monetary policy has a big impact on how we move within the strategy,” says Rieder. “We don’t think the [European Central Bank] is going to move for a long time; [we think] they don’t raise until well into 2019.” Nor does the firm think the Bank of Japan will raise its rates in the near term, or “maybe forever,” he says.

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