The glory days of having one core strategy delivering income on one side and protection on the other have diminished. Fixed income investors, due to the low interest rate environment, are forced to source income and protection through different strategies, creating a bifurcated portfolio. Credit markets of today have changed dramatically with liquidity shrinking and credit quality suffering. These dynamics have created an environment that may be fraught with risk, although it has yet to bubble to the surface.
Recent years have been tough for active managers, but their skill is critical to shepherding bond investors through these changes as compensation for their risks reaches near historical lows. A flexible strategy demands a skilled active manager, one with experience in rising interest rate environments and periods of elevated market volatility. For advisors, it’s an opportunity to consider another, more flexible approach that leaves the core bond behind to explore a variety of asset classes, countries and capital structures.
Steve Graziano is president of Touchstone Investments, a mutual fund company committed to providing investors with active management delivered by independent, experienced, institutional asset managers that serve as sub-advisors to the Touchstone mutual funds. The Touchstone Funds are distributed by Touchstone Securities Inc., a registered broker-dealer and member FINRA/SIPC.