Patience is a virtue, and that especially rings true for fixed income investing, so the long-term horizon is where investors should focus in this tricky market environment.
Fixed income appeals to ultra-high net worth (UHNW) clients who prefer cash and the stable passive cash flow that fixed income can provide. However, it’s all a matter of keeping the long game in mind, particularly when it comes to fixed income investing.
“The golden rule of investing is to invest for the long-term and remain invested during times of market stress,” said Citi senior client executive Jeff Lee. “There is always a place for fixed-income investments in any portfolio."
“Besides cash, UHNW investors allocate a portion of their portfolio to fixed income as it is more defensive and offers a stable inflow of income," Lee added. "They predominantly focus on blue chip companies with strong balance sheets and solid foundations.”
Going Long on Corporate Bonds
In terms of investing for the long term in investment-grade debt, that’s exactly what the FlexShares Credit-Scored US Long Corporate Bond Index Fund (LKOR ) does. The fund focuses on corporate debt that skews towards the long end of the yield curve, making it an ideal option for yield.
Per the fund description, LKOR seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust US Long Corporate Bond Index. The underlying index reflects the performance of a broad universe of U.S.-dollar denominated investment-grade corporate bonds that can potentially deliver a higher total return than the overall investment-grade corporate bond market, as represented by the Northern Trust US Investment Grade Long Corporate Bond Index.
“The construction of the index begins with a securities screen to determine eligible securities,” a FlexShares Fund Focus article notes. “Once all eligible securities have been identified, the index attempts to optimize the exposure to quantitative factors by assigning both a Value Score and Quality Score in order to arrive at a Composite Alpha.”
“Corporate bonds remain an important component of many investors’ fixed-income holdings, offering the potential for diversification and income generation,” FlexShares adds. “Low bond yields and the potential shortcomings of traditional credit scoring methodologies have made pursuing these potential benefits more difficult.”
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