The fourth category, duration risk, comprises funds that fulfil the most traditional role of a fixed income allocation, namely a counterbalance to falling equity markets and struggling economies, and are benefitting from downward trending interest rates.
It will contain funds that take an active asset allocation approach and a meaningful duration risk to provide a level of diversification that investors seek from their fixed income exposure, with the potential of a combination of capital accumulation and income.
By sub-dividing the strategic bond sector into these four categories, an investor can better determine a fund’s expected outcome, define its objective and set an appropriate benchmark to demonstrate success.
In doing so, greater sense can be made of the somewhat chaotic blend of funds within the sector and an informed investment decision can be made based on like-for-like comparisons.
Eduardo Sánchez is head of fixed income and absolute return research at Square Mile Investment Consulting and Research
