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G2 FinTech Gleans Valuable Information at “Investing in Non-Traditional Fixed Income” Conference
Thursday, June 10, 2014
Last week G2 FinTech attended the Financial Research Associates conference on Investing in Non-Traditional Fixed Income where investment managers, portfolio managers, strategists, and consultants shared useful information on the state of alternative fixed-income investments. Here’s just some of what we heard.
A recurring theme of the conference included the continuing low-rate environment, which has gone on longer than expected. In an April survey of 67 economists by Bloomberg, everyone expected the 10-year treasury rate to rise. Instead, it dropped from 3% to 2.4%, before rebounding to 2.6%. Speakers were unwilling to bet on the direction of interest rates. This uncertainty has prompted many investors, pension funds especially, to take on higher risk in an attempt to get desired returns. Quantifying and managing this risk was another conference theme. Bank loans, emerging market debt, high-yield debt, distressed and defaulted debt, and other investments that can perform well in this low-rate environment were discussed. In addition, the merits of unconstrained bond strategies and where they fit into a portfolio strategy were discussed.
Speakers also touched upon the difficulties benchmarks pose in the high-yield space. On the equity side, things are much easier, as there is a more limited number of investments, which generally have a liquid market. On the fixed income side, there is a much larger pool of investments that go into the benchmark, many of which are not liquid. Up to 30% of the Barclay’s Aggregate Bond Index is non-investible. Conversely, a few large issues can have an inordinate effect on the index. As bonds are issued and retired, this can cause the duration of the index to change.
This conference touched upon a number of other important issues affecting the alternative fixed-income investment space. We found it highly informative and worthwhile.