Seasons Change — And So Do Markets
In the quest for yield, some pension funds are buying riskier insurance products
For years, we have all been saying that interest rates must increase, that they can’t remain at historically low levels, and that the bull market in bonds must end after 30-plus years. After all, how long will investors be content to “earn” negative real yields?
Investors looking for an opportunity to increase yield while rates remain historically low, and simultaneously position their portfolios for potentially rising rates, may want to take a closer look at floating rate loans. Floating rate loans are liquid, shorter-term assets that carry a floating rate coupon and can provide compelling income with zero duration risk.
When we hear the term fixed income, most of us think about bonds issued by corporations and various levels of government. In today’s world of low interest rates and prospects of fixed income losses (when yields rise), mortgages may provide an attractive complement to fixed income allocations.
SEI has launched a long duration credit bond fund, which is designed to help Canadian DB plan sponsors minimize pension expense volatility by enabling them to balance pension liabilities with more suitably matched assets.
While fixed income strategies have long been recognized as good sources of cash flow generation, alternative investments (real estate and infrastructure) and equity strategies are other useful options to help meet the needs of pension plans focused on yield-oriented strategies.
The losses underscore the extra risk in the longest-maturity bonds if the economy recovers faster than investors expect...