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The case for Tactical Fixed Income Portfolios

Institutional investors are known for being able to play the long game but sometimes something so fundamental changes in assumptions that a rethink may be in order. The impact of unprecedented quantitative easing undertaken by the world’s central banks is leading many investors to wonder what to do with their fixed income allocations amid an environment where long term return assumptions of 4-6 percent seem widely far-fetched.
 

Highlights

  • In the current low-yield environment, fixed income investors need to take full advantage of both aspects in order to fully realize their return objectives.
  • Fixed income portfolios may be hamstrung in their ability to manipulate key levers if they are not afforded the flexibility or do not have the capability to implement their investment decisions quickly and in a timely manner.
  • There are three main strategies that can be employed to the benefit of a portfolio.

Canadian corporate spreads Q1 2020 to Q1 2021

Line graph showing the Canadian corporate spreads from the first quarter of 2020 to the end of the first quarter of 20201. The historical average is 136. The FTSE corporate bond index spread was at its highest level at 262 basis points in March 2020. It has been decreasing steadily and dipped below the historical average of 136 points at the end of November 2020. At the end of the first quarter of 2021, the FTSE corporate bond index spread was at 115 points.

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