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October 27, 2014

Fixed Income Perspectives: Choosing a Fixed Income Manager

Role of Fixed Income in Asset Allocation

Even in today’s low interest rate environment, fixed income can play a vital role within an asset alloca on. Bonds generate income which can be used to meet cash needs while avoiding potential costly liquidations. Furthermore, an allocation to fixed income investments can dampen the volatility of the overall portfolio.

Choosing a Fixed Income Investment Philosophy

Any fixed income investment philosophy must address the four main risks found in all fixed income portfolios: credit risk, relative interest rate risk, structure risk and liquidity risk. Every manager must choose what level of each risk is appropriate for their portfolio given the amount of return available. These choices will lead to the overall riskiness of the portfolio.

Managers can easily be assessed by plotting them on each risk spectrum to achieve a solid understanding of a portfolio’s risk level. A client can then decide if that portfolio fits their risk tolerance profile.

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How Reinhart Partners Fits

The Reinhart Partners philosophy is as simple as it is effective; approach risk conservatively while still delivering income potential with low volatility. Reinhart invests only in high quality investment grade bonds, minimizes relative interest rate risk by maintaining dura on similar to the benchmark and builds well-structured, liquid portfolios utilizing primarily non-callable bonds. Reinhart Partners fixed income products fit into a portfolio as either a standalone or complementary alloca on. As a standalone alloca on, Reinhart fixed portfolios work well for clients looking to earn a fair return with a relatively low risk profile. Reinhart also is a good fit for clients looking to transition from riskier portfolios as risk/return tradeoffs become less favorable. For those clients looking to have a riskier profile, Reinhart portfolios provide a buffering complement for an alloca on to riskier strategies.