FIXED INCOME // TARGET YIELD
A suite of globally diversified bond portfolios; each portfolio seeks to deliver a consistent yield profile in excess of the 1-year U.S. Treasury rate with minimal capital volatility.
Excess yield levels offered include +1%, +2%, +3%, and +4%.
- May not be tax efficient
- May not closely track the strategy’s benchmark
- May hold very concentrated positions
- Unlikely to protect against short-term volatility
- Apply a robust optimization process to identify the optimal mix of asset classes to achieve the target yield level while seeking to minimize risk across a number of dimensions (including volatility, drawdown risk, and fundamental metrics).
- Review tactical models on a weekly basis.
Detailed process information available in the Document Center.
Questions & Answers
The portfolio invests in exchange traded funds (ETFs) representing traditional and extended sectors of the global fixed income market. We utilize ETFs as the building blocks of its portfolios because they are a transparent, cost-effective, and highly liquid means of gaining and managing exposure to particular asset classes and market sectors.
The portfolios target a yield level that floats above the 1-year U.S. Treasury rate. For example, if the 1-year U.S. Treasury rate is 0.60%, then the +3% portfolio would target a yield of 3.60% and the +4% portfolio would target a yield of 4.60%.
The portfolio employs a robust optimization procedure, seeking to hit the target yield level while managing risk across a number of dimensions. Those dimensions include volatility of the capital based, the conditional value-at-risk of the portfolio, and fundamental risks (default risk, currency risk, et cetera) that are more difficult to capture through quantitative means. By optimizing across a number of risk factors, we believe we can create a portfolio that is more robust to latent risks that may not be evident in only a single risk factor.
The portfolio is evaluated on a weekly basis. In stable market environments, we expect to make few, if any, portfolio changes; in higher risk environments we expect to trade the portfolio more frequently in effort to keep up with changing market dynamics.
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