Tactical Fixed Income Strategies for an Uncertain Bond Market
BCM offers a series of tactical fixed income strategies that focus on growth, yield and defense. Whether you are looking for tactical or dynamic, quantitative or fundamental management, we have options for you and your clients that will seek to pay on and preserve their capital.
Each of BCM’s tactical fixed income strategies has a unique approach to managing risk. While different in construct, they all seek positive total returns while reducing portfolio volatility and drawdown.
Do you remember the last time interest rates were steadily rising?
Prior to the late-2016 and early-2017 rate increases, the only time in the last 35 years the Federal Reserve raised the short-term rates was from 2004 to 2006 when they initiated 17 rate increases of 25 basis points each. If interest rates were to increase again, bond values would likely incur significant losses.
Interest rates can rise suddenly for many reasons. The cause is not important, but the results are.
What would a sudden, rapid increase in interest rates mean for your clients’ fixed income portfolios?
Is your bond manager ready?
Attempting a first ascent on an unfamiliar route would not be prudent without the proper safety protocols and technical skills. Even with extensive climbing experience, you need to be prepared for the unexpected, without sacrificing progress towards the summit.
The same applies for the investment landscape of the bond markets. Bonds are typically purchased to provide income and/or to reduce portfolio risks. While it is important to search for the best opportunities to provide yield and return, it is also prudent to prepare for the inevitable bond bear market.
BCM’s Fixed Income strategies seek to take advantage of opportunities presented while managing the risks of the fixed income market. We offer varying research methodologies, management styles and geographies.
Fundamental and Tactical Fixed Income
The BCM Income strategy seeks to invest primarily in high quality fixed income ETFs with the ability to invest in measured high yield and equity income opportunities. The strategy is fundamentally managed according to the long-term themes of the Beaumont investment committees and typically is diversified across geography, type, credit quality and duration. Each allocation can go to 100% money market if conditions warrant.
High Quality Fixed Income
70% in investment grade or government-backed bond ETFs.
High Yield Income
Up to 15% in non-investment grade bond ETFs if appropriate risk/reward
Up to 15% in income producing ETFs such as REITs, Utilities and High Dividend ETFs
BCM Paradigm Tactical Fixed Income
Quantitative and Tactical Fixed Income
The strategy uses a set of quantitative models to examine patterns in investor behavior that may induce a paradigm shift or a change in market environment. The process begins by identifying if each candidate in the universe of U.S. ETFs is in a “normal” or “volatile” market. The candidates that are considered to be in a “normal” market are selected and risk-weighted to construct a portfolio that seeks positive returns while minimizing volatility and drawdown. The candidates determined to be in a “volatile” environment are excluded from the portfolio.
For the full description of the BCM Paradigm Strategies, click here.
BCM Dynamic Global Fixed Income
Quantitative and Dynamic Fixed Income
This strategy is quantitatively managed and uses dynamic (strategic + tactical fixed income) management to seek opportunities in a universe of fixed income ETFs. The strategy primarily uses bond market volatility to determine when and where to invest.
A set of 5 quantitative models use both long and short term measurements to evaluate each ETF in the pool. The models have been trained over differing periods of time and each will determine if the global fixed income markets are in a “normal” or “volatile” environment. Then, if it is determined that the markets are in a normal state, each model outputs a set of desired weightings of the ETFs in the pool. If a volatile state is determined, that model will allocate to a set of high quality, short duration ETFs. The final weighting is a combination of each model’s outputs.
The investment universe for the Dynamic Global Fixed Income strategy includes domestic and international, and developed and emerging market bond ETFs. Also included in the universe are a set of low-risk ETFs that provide exposure to high-quality, short-duration fixed income ETFs when global bond markets are determined to be volatile.
Reading the terrain and mountain conditions to choose the best path.
BCM's Fixed Income Strategies:
A set of strategies that use different approaches to take advantage of opportunities and manage the various risks of the bond markets seeking to avoid large losses.