Perusing meeting minutes from the Federal Open Market Committee (FOMC) isn’t always easy or entertaining, but the text out earlier this week may contain vital clues for advisors and asset allocators alike.
Advisors can prepare for changes in the bond market with the WisdomTree Fixed Income Model Portfolio.
“This model portfolio is focused on a diversified stream of income. It seeks to benefit from secular trends we see evolving in the fixed income markets in a risk-conscious manner. The model portfolio focuses on select opportunities in core sectors, while strategically allocating among sectors and extending the model portfolio’s reach globally,” according to WisdomTree.
One thing is clear: low interest rates will be around for some time.
“Federal Reserve officials, citing the uncertain course of the pandemic and a late-year economic slowdown, said they expect to keep short-term interest rates near zero and maintain $120 billion in monthly bond purchases until they conclude employment and inflation achieve their objectives, minutes of the central bank’s latest policy meeting show,” reports Brian Hershberg for Barron’s.
A Model Portfolio to Face Bond Challenges Head-On
A few years ago, interest rates had been rising steadily and the belly of the yield curve was significantly underperforming. If an investor was in an intermediate term fund, they would have been lagging the market for over a year, but if they had incorporated a bond ladder holding short, intermediate, and longer maturity bonds, they could have been less impacted by the uneven movement of interest rates.
This model portfolio could become increasingly alluring for advisors and their clients in what could become a soaring deficit environment.
“The minutes said most members expected that the stimulus late last year, the likelihood of additional fiscal support, and continued progress in vaccinations would lead to a sizable boost in economic activity,” added Barron’s.
Another reason the WisdomTree model portfolio is a relevant near-term consideration is that Treasury yields have risen over the past several months. The model portfolio features exchange traded funds with a variety of durations, meaning it can still be responsive to changes in Treasury yields while not exposing investors too heavily to that trend.
For more on how to implement model portfolios, visit our Model Portfolio Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
