Navigate Rates

Investment risks, such as changing interest rates, may present opportunities for fixed-income solutions. Consider a non-traditional approach for navigating interest rates with Columbia Threadneedle Investments.

Predicting how and when interest rates will change can frustrate investors and leave advisors uncertain on a strategy. Instead of viewing fluctuations as an obstacle to your clients’ goals, consider them an opportunity. We’ve created a non-traditional strategy to endure changing rates and thrive in all markets — helping you navigate today's fluctuating market and guide your clients toward success.

Four major risk factors

What is a risk factor?

Before we can get into strategies for building better portfolios, we first need to review the major types of risk factors that drive fixed-income performance.

A risk factor is an independent market variable that helps explain the return of an investment.  While "risk" often carries a negative connotation, here it equally represents positive return potential.  In the bond market, while there are my risk factors that drive performance, we find four dominant risk factors:

Duration, credit, inflation and currency risk are all drivers of fixed-income performance, and they affect investments differently. We believe that a multi-sector approach that capitalizes on all four risk factors may lead to better or more diversified outcomes across market cycles. In each case below, one of the four risk factors dominates the overall risk profile, which subjects investors to a narrow range of potential outcomes.

For a closer look at when these risks are most and least attractive, read our white paper, Harnessing Fixed-Income Returns Through the Cycle.

How different risks drive performance of common bond indices 

 

Source: BlackRock Solutions, 12/31/17.
View Index Description Glossary. It is not possible to invest directly in an index

When can risk mean opportunity?

We believe that understanding the four risk factors lays the foundation for successful, strategic bond market investing. Because these factors are not highly correlated, they can provide diversification benefits in a portfolio when used together. Since each risk factor is unique, they produce positive returns in different periods throughout market cycles, creating opportunities for investors to emphasize different risks at different times and in different market environments.

By breaking bonds down to their most basic components, today's investors can gain a better understanding of the factors that generate risk and return.  A better understanding of these drivers can help investors navigate the current market and build bond portfolios that can generate attractive returns through the cycle.

 

Solutions for Navigating Interest Rates

Columbia Strategic Income Fund

Morningstar Category: Nontraditional Bond

Strategy

This fund aims to deliver a competitive level of income and adapts to market fluctuations by accessing returns associated with global bond market risks: inflation, interest rate changes, credit risk and currency fluctuations.

Benefits

  • Seeks to provide attractive income in all environments
  • Leverages global research capabilities to uncover attractive investment opportunities
  • Designed with a flexible mandate focused on capturing returns through all economic cycles