The fixed income investing climate remains fraught with challenges, but advisors can deliver superior approaches with model portfolios
One option to go on the offensive with the WisdomTree Fixed Income Model Portfolio.
“This model portfolio is focused on a diversified stream of income. It seeks to benefit from secular trends we see evolving in the fixed income markets in a risk-conscious manner. The model portfolio focuses on select opportunities in core sectors, while strategically allocating among sectors and extending the model portfolio’s reach globally,” according to WisdomTree.
In today’s low-yield environment, advisors may want to consider upping exposure to credit and short duration fare – something the WisdomTree model portfolio accomplishes.
“We maintain our positioning of overweight credit and shorter duration relative to the benchmark,” according to WisdomTree. “The biggest story in fixed income and arguably all capital markets has been the spike in the U.S. Treasury (UST) 10-Year yield. While the 10-Year yield has risen by 120 basis points (bps) from its August low, roughly 80 bps of this increase occurred in just the first quarter of 2021 alone.”
Modeling for Better Bond Outcomes
A few years ago, interest rates had been rising steadily and the belly of the yield curve was significantly underperforming. If an investor was in an intermediate-term fund, they would have been lagging the market for over a year, but if they had incorporated a bond ladder holding short, intermediate, and longer maturity bonds, they could have been less impacted by the uneven movement of interest rates.
The model portfolio is also useful for clients at a time of yield curve steepening.
“The 2s/10s yield curve has visibly steepened to its widest level since mid-2015. The March FOMC meeting underscored the Fed’s intention to continue providing an extremely accommodative monetary policy approach over the next two years,” adds WisdomTree.
With the recent injections of cash from both the Fed and Congress, some advisors are watching for nascent signs of inflation.
There’s debate between advisors about the short-term inflation outlook; however, advisors say as they consider medium- and long-term planning, they take rising prices into account as they position portfolios, especially for their clients close to or in retirement.
“Despite raising their median inflation forecast to at least their 2% threshold through 2023, the policy makers’ consensus view was for no rate hikes during this period, underscoring their intention to let the economy run,” continues WisdomTree. “Inflation expectations have moved to the widest readings in a decade. We continue to see the potential for further upside in the UST 10-Year yield in the months ahead, leading to some additional steepening of the yield curve.”
For more on how to implement model portfolios, visit our Model Portfolio Channel.