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December 2017 | Brian Garvey, Multi-Asset Portfolio Manager, Brij Khurana, Multi-Asset Portfolio Manager

Opportunistic Fixed Income: The flexibility to pursue higher returns with core bond volatility

In a world of diminishing bond yields, Opportunistic Fixed Income (OFI) is our established solution that seeks to maximise total returns from fixed income investing while maintaining the volatility profile of core bonds.

Opportunistic Fixed Income (OFI) is the strategy our firm has managed for 17 years1 to seek to maximise total returns from fixed income investing in a world of diminishing bond yields. OFI provides unique access to the best fixed income strategies from Wellington Management — a market leader in fixed income investing. By adopting a flexible, nimble, “go-anywhere” approach, we designed OFI to seek total returns of 5% – 7% a year (gross, in US$, over the course of a business cycle, which is typically 3 – 5 years) while maintaining the volatility profile of a core fixed income allocation2.

Keypoints

  • In contrast to core bond returns of typically 2 – 3% gross in US$, we believe a flexible, nimble, go-anywhere approach to fixed income investing can deliver outsize returns despite bond yields remaining very low.
  • The return profile we seek to generate for clients is distinctive and asymmetric, with the potential upside being greater than the potential downside. This reflects the breadth of the fixed income opportunities we can access, our ability to allocate dynamically between them, and our ability to target idiosyncratic as well as broad sectoral opportunities.
  • Opportunistic Fixed Income aims to access the best fixed income strategies from across Wellington Management. It targets a total return of 5% – 7% (gross, in US$) while maintaining the volatility profile of a core fixed income allocation. The strategy has a 17-year track record.

The approach aims to achieve positive returns in all market conditions, but there is no guarantee that this objective will be achieved and your capital is at risk. The performance target is gross of all fees and expenses, which, if reflected, would lower the performance target.

Opportunistic Fixed Income seeks to generate performance from three key drivers of total return within fixed income:

  • Longer-term strategic themes/sectors
  • Market-neutral strategies
  • Shorter-term tactical positions/hedging

By allocating dynamically across these three components, we look to capture complementary total-return opportunities from fixed income while preserving the risk characteristics many clients seek from their core allocations to bonds.

The lead portfolio manager Brian Garvey formally took over the approach on 1 July 2008. | 2 We define core fixed income volatility as being similar to that of the Bloomberg Barclays Global Aggregate Bond Index hedged to US$. During times of market stress, target volatility may be different from the stated aspiration. This is a US dollar-based approach and investment in other currencies may experience different returns because of hedging and interest-rate differentials.

All investors should consider the risks that may impact their capital, before investing. The value of your investment may become worth more or less than at the time of the original investment.

Past performance is no guarantee of future performance and can be misleading. Funds returns are shown net of fees. Source: Wellington Management

© 2018 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.

Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk. The price and value of investments is not guaranteed and can go down as well as up. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. If an investor is in any doubt as to the suitability of an investment in a fund, an investor should consult an independent financial advisor. The information on this website does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in any security including, but not limited to, shares in the funds. An investor should only invest in a fund once that investor has carefully read and understood the prospectus and KIID for the fund which contain further information on the risks and features of the fund. Unless stated otherwise data is as at previous month end.

This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice.

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