“Bond selection is primarily a negative art. It is a process of exclusion and rejection, rather than of search and acceptance.”
— Benjamin Graham
Fixed income is often viewed as lackluster with little room for evolution—a notion we firmly disagree with. If, as an asset class, it hasn’t received the same attention as equities, that simply means there’s more room to innovate. Even the most growth-oriented investor should consider the benefits a robust, novel fixed income strategy can offer their portfolio.
What is Fixed Income?
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Income-generating securities that return initial capital after they mature, such as bonds, GICs, preferred shares, and loans.
Why Fixed Income?
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Predictable income streams, portfolio volatility management, and positive performance when interest rates fall.
Who needs Fixed Income?
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Retirees in need of income, low-risk profile clients, and equity investors seeking attractive opportunities.
An Afterthought to Some
Many have neglected fixed income, choosing to employ a simple laddered approach of spreading bond maturity dates over a specific period. More recently, fixed income exchange-traded funds (ETFs) have gained popularity, but are again focused on bonds. Historically, such a strategy proved effective as bond prices move in opposition to interest rates, but recent events have questioned its viability. Rising interest rates and surging government debt burdens have not been kind to bond investors.
An Opportunity to Bellwether
As fiduciaries, Bellwether has never shied away from going against industry norms if carving our own path better served clients. We cannot overstate the importance of fixed income in the vast majority of portfolios. Our goal was to create a true fixed income solution that not only generated higher income, but also dampened overall portfolio volatility through heightened diversification.
The Method
The innovative strategy integrates our in-house expertise with that of various third-party managers to access global public and private market securities. Bonds still have their place under the right circumstances, but we have opened our minds to more unique fixed income approaches—ones typically reserved for large, institutional investors.
The Global Financial Crisis introduced new regulatory changes, unveiling many exciting opportunities with proven track records. Private lenders are going through what some would call a golden era, as banks are either unwilling or incapable of competing in their niches.
The Solution
Successful fixed income investing ultimately boils down to earned interest and the level of certainty that your capital will be returned after a specified period. Our investment team spends considerable time evaluating the ability of our managers to achieve these goals through our rigorous due diligence process.
Taken together, Bellwether’s Fixed Income Strategy provides clients with the flexibility to grow their wealth, generate predictable income, and provide short-term liquidity as needed. More recently, our approach has demonstrated superior resilience and the capability for sustained, strong performance in an incredibly challenging environment. It’s not that fixed income is boring; it simply requires forward-thinkers to thrive.
Below, we’ll address some common misconceptions.
“I don’t need fixed income”
While technically true, the same can be said about investing in general. Preconceived notions regarding fixed income have come and gone before, much like the efficacy of the bond ladder, but to ignore new opportunities that can dampen overall portfolio volatility may not be wise.
“Fixed income is for retirees”
Demographically speaking, retirees tend to reduce equity exposure to help manage risk and supplement their lost salary through fixed income. Even growth investors, however, can benefit from reinvesting compounding returns to get ahead and reduce portfolio risk.
“Fixed income won’t make me rich”
Maybe, maybe not. With proper management, however, fixed income securities can provide more flexibility to grow and preserve your wealth. If your only option to withdraw capital from your portfolio is to sell stocks, you may be harming your long-term prospects. Fixed income can sustain your cash needs without forcing you to jeopardize what you’ve worked so hard for.
Fixed Income Isn't Broken
Each and every investor is different. Their needs, circumstances, goals, risk tolerance, and more contribute to shaping a portfolio and investment strategy that’s right for them. We understand that many give preference to equity, and there’s nothing wrong with that.
That said, even those who are most predisposed to stocks should reassess their position from time to time and consider diversifying their portfolio with traditional and alternative fixed income securities. It’s not that they’re inherently better or worse, but that they serve different purposes and add value in their own way.
When properly managed, that value can compound, and the benefits of each class can complement one another. If you’re interested in finding out how, we’re a phone call away.
