Source: MacKay Shields, Bloomberg, For illustration purposes only. Treasury Securities are backed by the full faith and credit of the United States government as to payment of principal and interest if held to maturity. Credit ratings are evaluations of the ability of an organization to meet is debt obligations.
As active bond managers we compare companies’ credit spreads to gauge both the relative attractiveness and riskiness of different bonds with similar maturities. By combining active portfolio management and bond selection, we look to own those companies whose credit spreads we believe will compress as companies’ financial prospects strengthen. Conversely, we seek to avoid owning companies whose fundamentals we believe will weaken and credit spreads widen.
In fact, active bond portfolio management allows us to go even further than simply picking the right company. We can intentionally choose how long we want to lend to a company by selecting bonds with specific maturities. For example, we may not want to own a 50 year bond of a traditional clothing manufacturer as we believe clothing fashions will radically change in the next 50 years. However, we may own a 5-year bond of that same manufacturer if we do not expect drastic fashion changes over those 5 years and believe the company will remain solvent.
Putting this all together, by combining informed views of how well we believe corporations will perform and an understanding of available investment opportunities has the potential to lead to strong (competitive)performance by active bond managers. Passive investments that consist of simply owning an index which ignores the benefits of having informed views of underlying company financial trends, relative attractiveness of credit spreads along different maturities and how changing industry trends can adversely impact returns.
Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.
Funds that invest in bonds are subject to interest rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk which is the possibility that the bond issuer may fail to pay interest and principal in a timely manner.
This material represents an assessment of the market environment as of a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision. The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
Duration measures how long it takes, in years, for an investor to be repaid the bond’s price by the bond’s total cash flows. Duration is a measure of sensitivity of a bond's or fixed income portfolio's price to changes in interest rates.
“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company. Securities are distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302. NYLIFE Distributors LLC is a Member FINRA/SIPC.