Fixed Income
Lending exposure structured around credit quality, duration, liquidity and the portfolio's income requirements.
Purpose
Fixed income allocations lend capital in exchange for contractual payments. Within a portfolio they may serve several distinct purposes, including income, duration, diversification against equity risk, or a reserve of liquidity, and those purposes imply different structures.
Approach
- 01
Decide the purpose of the allocation first; income, defence and liquidity are not the same objective.
- 02
Analyse credit quality and issuer-level risk rather than relying solely on external ratings.
- 03
Manage duration deliberately in relation to the portfolio's horizon and spending needs.
- 04
Monitor the practical liquidity of holdings, particularly in less-traded segments of the market.
Where it fits
Income, duration and, depending on structure, a defensive or liquidity role.
- Portfolios with defined income or distribution requirements.
- Mandates seeking to moderate overall portfolio volatility.
Risk considerations
- Bond prices move inversely to interest rates; rising rates reduce the market value of existing holdings.
- Credit risk, liquidity risk and inflation risk each affect fixed income differently.
- Yield is not a measure of safety.
Next capability
Multi-Asset Strategies
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Mandates begin with a discussion of objectives, horizon and constraints, before any portfolio is proposed.
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