In a challenging bond market with yields today near historic lows and rates poised to rise, investors should consider flexible and non-traditional approaches.
Why you need to act:
- Traditional bond funds have a high degree of interest rate risk sensitivity and with rates at current levels, may have limited upside growth potential. †
- It is likely short-term interest rates will be anchored at zero, while longer-term interest rates may move higher.
- We believe staying in low-risk, low-return asset classes like cash is likely to provide negative real returns.
Flexible bond portfolios are not tethered to benchmarks, and can adapt to changing conditions by seeking to manage interest rate and credit risk.
Investing beyond the U.S. bond market can help diversify the sources of your returns and contribute to the overall growth of your portfolio.
Move cash off the sidelines to seek incremental yield and help minimize interest rate risk, but be aware of the different levels and kinds of risk some funds may take.
*Morningstar Direct. As of 6/30/14. Traditional Bond Funds are represented by the Morningstar Intermediate-Term Bond category. Based on all share classes and 968 funds out of 1105 posting negative returns in 2013.
†Traditional core bonds represented by the Barclays U.S. Aggregate Bond Index.