Fixed Income

Alternatives to Long Corporate Bonds

February 2015
Along with long government bonds, long corporate bonds have been the predominant asset class that plan sponsors have used in an effort to hedge their pension liabilities. Although long corporate bonds are well suited to hedge pension liabilities, hedging is an imperfect exercise for a number of reasons. The attached Insights explores other long duration assets that may serve as a complement to plan sponsors’ current LDI programs.

 

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Bond Market Liquidity

September 2014
Fixed income market liquidity, defined as the ability to transact in the market without affecting the asset’s price, has always been varied. This disparity in liquidity presents both opportunities and challenges for investors. Potential challenges stemming from bond liquidity have risen as evaporating market liquidity could cause prices to fall rapidly and sharply in the event of a market correction. This Rocaton Insights explores current liquidity conditions across fixed income markets and the potential implications for investors’ portfolios.

 

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Playing Defense: Investing in Convertible Bonds

May 2014
Diversified investors often hold a mix of public stocks and bonds alongside alternatives such as real estate, private equity and hedge funds. Although convertible bonds are infrequently used by institutional investors, they may help improve a portfolio’s return and risk profile. Rocaton first highlighted the benefits of a convertibles allocation in 2006 (The Case for Convertibles, August 2006). The attached Rocaton Insights will revisit our research from 2006, review convertibles’ performance in recent years and outline various active management approaches.

 

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High Yield Municipal Bond Outlook

February 2014
Uncertainty surrounding Federal Reserve interest rate policies and negative municipal headlines related to Detroit’s bankruptcy proceedings, Puerto Rico’s deteriorating fiscal situation, and Illinois’ pension reform issues made for a volatile 2013 in the retail driven municipal market. While volatility remains, this dislocation has led to a potential investment opportunity, particularly in high yield municipal credits. In this Rocaton Insights we review the characteristics of the municipal high yield market and the potential opportunities that exist.

 

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High Yield: The Merits of Active Management

January 2014
Active management is widely adopted in fixed income given the over the counter nature of the asset class, the complexity of certain security types, and the differing objectives among the investor base. High yield stands out as an area where skilled active managers have historically delivered strong relative performance. The past five years, however, have been an anomaly, given that active high yield managers of all styles have generally lagged market indices. In this Rocaton Insights we will provide theoretical support for active management within high yield and will delineate possible outcomes for active management moving forward.

 

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The Outlook For Treasury Inflation Protected Securities

November 2013
The continued expansion of the Federal Reserve’s balance sheet coupled with a zero interest rate policy has led many market pundits to speculate that inflation will come roaring back in the not too distant future.  Despite the fact that inflation has remained modest for much of their existence, Treasury Inflation Protected Securities (“TIPS”)  have continued to deliver strong performance.  In the attached Rocaton Insights, we examine the outlook for TIPS and suggest alternatives for investors to position their portfolios to protect against inflation.

 

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Emerging Market Debt Update and Outlook

July 2013
Volatility returned to many fixed income markets during May and June, particularly the emerging market debt market. Through the end of June, heightened volatility remained and performance across all emerging market debt markets suffered. In the attached Rocaton Insights, we provide an update on performance and provide our outlook for the asset class.

 

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The Search for Yield Continues: A Re-introduction to Bank Loans

May 2013
The low interest rate environment continues to be a concern for many plan sponsors. Bank loans, an asset class that is relatively underutilized by many institutional investors, can offer modest levels of current income with little interest rate risk. The attached Rocaton Insights presents the case for why plan sponsors might want to consider making an investment in this asset class.

 

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