MATT KUSS: I’m Matt Kuss, and in today’s challenging markets, advisors have been asking us about active fixed income, and how to activate these strategies in client portfolios. In this three-minute video, I’ll answer the top four questions that we’ve received.
The first question from advisors has been whether active fixed income makes sense in today’s environment. Given our current market backdrop, we believe that an active fixed income approach can potentially help client portfolios. An active manager has the freedom to reposition portfolios as market dynamics shift. For instance, as interest rates fluctuate, an active manager can identify potential pockets of relative value along the yield curve, and allocate accordingly with a focus on reducing risk and/or enhancing returns over time.
The second question advisors have asked is about the key differences between active and passive fixed income strategies. One key difference is that active strategies have the flexibility to identify and execute on investment opportunities beyond their underlying benchmark. A few examples are credit selection, duration management, targeted sector allocations, and credit management. Passive strategies in most instances don’t have this flexibility, as they are usually focused on tracking an index.
Third, advisors have asked what types of clients seem to be best suited for active fixed income? Three objectives tend to drive active fixed income allocations—income, capital preservation, and diversification. Along with addressing these three objectives, an active fixed income management solution is usually best suited for clients looking to enhance returns with a tailored approach for their risk profile and investment needs.
The fourth question from advisors has been how to implement active fixed income into their clients’ portfolios. One approach would be to add active fixed income as a complement to your clients’ existing core bond holdings, which are likely to be more passive and index-based. Using this better together approach can potentially help your clients capture some of the benefits of active fixed income, while still receiving a predictable income stream, diversification from equities, and more stable returns than stocks tend to provide. Of course, any fixed income shifts should be made with a client’s risk tolerance and income needs foremost in mind.
So that sums up the top advisor questions that we received about active fixed income. And if you are looking for the right fixed income strategy for your clients, Schwab Asset Management offers fixed income ETFs, mutual funds, and separately managed accounts, covering all major sectors, and including both active and passive strategies. In addition, if you have questions about your fixed income positioning in your clients’ portfolios, please reach out to us for a complimentary portfolio evaluation. Thanks for watching.
Past performance is no guarantee of future results, and the opinions presented cannot be viewed as an indicator of future performance.
Investing involves risk, including loss of principal. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Investment value will fluctuate, and bond investments, when sold, may be worth more or less than original cost. Fixed income investments are subject to various other risks including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.
Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio.
An actively managed fund is subject to the risk that its investment adviser and/or subadviser will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its investment objective.
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