Using actively managed, nontraditional bond strategies may help provide better risk-adjusted returns in a rising rate environment. Since the nontraditional bond category is a relatively new Morningstar category, it’s important to do your research before selecting a strategy. Nontraditional bond approaches should have well defined objectives and levels of risk that the portfolio manager will take. Being flexible within one’s fixed income allocation is important. For instance, a tactical fixed income manager will compare the benefits of taking duration versus credit risk. It’s important for that manager to understand where we are in the business cycle. In our view in good phases of the cycle, it pays to be aggressive; in bad, it pays to be defensive. We believe a flexible approach can add a lot of value in the fixed income space.
High yield bonds have a fraction of the liquidity provided by stocks or Treasuries. For these reasons, we believe gaining exposure to this asset class is best achieved through the use of ETFs. A list of the largest high yield bond ETFs follows:
For more on high yields’ unique ability to generate income and protect principle if rates begin to rise, read Curing Two Ills with High Yield Bonds.
*As Oil Drops, Energy Junk Bond Holders Stay Calm, http://www.barrons.com/articles/as-oil-drops-energy-junk-bond-holders-stay-calm-1470457520
Patty Quinn McAuley is the Director of Marketing at Clark Capital Management Group, a participant in the ETF Strategist Channel.
[related_stories]Disclosures
Past performance is not indicative of future results. For education use only. The opinions expressed are those of Clark Capital Management Group, Inc. The opinions referenced are as of the date of publication, are subject to change without notice, and may not necessarily come to pass. Clark Capital reserves the right to modify its current investment strategies based on changing market dynamics and client needs. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. The investment or strategy discussed herein may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances.
This is not a recommendation to buy or sell a security or to adopt a particular investment strategy. There is no assurance that any securities, sectors or industries discussed herein will be included in or excluded from an account’s portfolio at the time you receive this report. It should not be assumed that any of the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. All recommendations for the last 12 months are available upon request.
Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services can be found in its Form ADV, which is available upon request. CCM-844