A Research On Fixed Income Investing

1545 Words Aug 27th, 2014 7 Pages
This research has important implications for Buy and Maintain fixed income investing. While there are many more attributes to take into account when choosing fixed income securities (multiple issues per issuer based on tenor, subordination, etc.), each fixed income security has arguably less idiosyncratic factors driving its return than an equivalent equity security. When building a Buy and Maintain portfolio that is resilient to various economic environments and stages of the business cycle, one must therefore draw from the entire global fixed income market; and, the global bond universe is huge.
But how many issuers are needed to achieve a well diversified
Buy and Maintain portfolio? Given there are over 200 industry sectors, then if the fund manager chooses five issuers per sector to feel confident of diversifying default risk, the portfolio would need to hold a minimum of 1,000 issuers in total! Instead, the fund manager should aim to hold a minimum of 200 issuers to maximize yield and protect against both market risk (through smart sector and geographic construction) and idiosyncratic risk from any particular issuer (through smart issuer and issue selection). 14 | Buy and Maintain: A “smarter” approach to credit portfolio management
INVESTMENT
INSIGHTS Buy and Maintain: A “smarter” approach to credit portfolio management
Choose managers with the scale to buy new issues direct
Insurance companies have large enough portfolios to matter to the fund managers that regularly…
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