The Guardian Fixed Income allocation is a flexible fixed income strategy with broad latitude to vary its investment mix in order to balance the risks and opportunities inherent in different market and interest rate cycles. By actively departing from the normal “strategic” mix of the portfolio, we seek better risk-adjusted returns than a similarly allocated static portfolio. Departures are confined within “tactical” ranges, which are pre-determined minimum and maximum exposures. Once the risk or opportunity that prompted a tactical departure is determined to have passed, we return the portfolio to its original strategic mix.
By actively monitoring global macro-economic and interest rate data such as credit spreads, corporate leverage, earnings and default outlooks and other leading indicators, we move the Guardian Fixed Income portfolio bond selection along a spectrum between high quality and high yield, as well as shorter or longer duration. This creates the potential for returns in both rising and falling interest rate environments, across the full economic and interest rate cycle.
Sample Allocation to the right is for informational purposes only; the actual holdings will vary significantly over time. This is not intended as a recommendation to buy or sell any of the securities represented here. See disclosures at the bottom of this page.
Key Investor Benefits
Income
Designed for investors who place a premium on principal preservation and seek income as well as growth.Principal Protection
Markets can be inefficient in their reaction to macro factors in the short to medium term. This strategy seeks to tactically adjust the asset allocation mix to improve alpha and manage downside risk.Experience
This conservative strategy has been overseen by the same skilled lead manager (Byron Green) for over 24 years.ETFs
The use of ETFs minimizes the cost of the strategy, while improving its transparency and tax efficiency.Why Bonds?
You’ve probably heard the prognostications: “Interest rates will rise in the coming years, so bonds are not the right choice now for your portfolio.” There are several problems with this reasoning. The first is that it treats all bonds the same, when they actually comprise a range of assets that vary along dimensions such as duration and credit quality.
For instance, high-yield issues, particularly convertibles, often behave like equities, while Treasuries tend to be negatively correlated with equities. Active management among these different types of bonds is capable of producing returns in very different interest rate environments, rising or falling.
There is also more to the return of a bond than its capital gain or loss. Income is a key consideration. Over the last 15 years, when interest rates have been generally falling, income has been the primary driver of bond performance.
As the chart to the right indicates, from 2000 through 2014, the Bank of America Merrill Lynch High Yield Master II Index derived all of its total return from income (yield), with capital losses detracting 3% from returns.
And rising rates can enhance the return from income. This brings the potential of overcoming capital losses when the bond portfolio is actively managed and management is free to move along the spectrums of duration and credit quality.
Source: BofA Merrill Lynch Global Index System. Yield returns are based upon the index yield at the beginning of each annual period. Past performance is no guarantee of future results. The performance of an index is not representative of any particular investment, as you cannot invest in an index. See disclosures at the bottom of this page.
Why Not Equities?
Equities are an important part of a portfolio, and so are bonds. In the absence of a crystal ball, diversification is an essential hedge against market turmoil that includes both.
We don’t have to look back further than 2008 to be reminded of an instance when Treasury bonds were one of the few assets to rise while virtually all other asset classes declined. And unlike gold, bonds are a hedge that can produce income for the investor while providing diversification.
The S&P 500 and the Barclays Aggregate total return indices represent stocks and bonds, respectively. Past performance is no guarantee of future results. The performance of an index is not representative of any particular investment, as you cannot invest directly in an index. See disclosures at the bottom of this page.
In Good Times and Bad Times
The Guardian Fixed Income’s 24-year performance history is shown here.
