CTWM Investment Committee: Portfolio ChangeSubmitted by Connecticut Wealth Management, LLC on October 31st, 2018
We are writing to share with you that the Investment Committee has approved another change to target allocations, this time within the bond portion of the portfolio. Specifically, we will be swapping the Vanguard Total Bond Index Fund with the Payden Low Duration Fund. This move will continue the theme of reducing the portfolio’s duration (i.e. sensitivity to interest rates), which means that as rates continue to rise, the impact to the bond portfolio’s return will be mitigated.
Normally, anytime you decrease risk like we are with this trade, we would expect a corresponding reduction in return potential. In this instance, the yield of the portfolio will remain virtually unchanged due to a flat yield curve in which investors are not being compensated for taking on added duration risk. This opportunity to reduce interest rate sensitivity without sacrificing yield, credit quality, or incurring tax costs makes for a very compelling risk-reward tradeoff.
A diversified, high-quality fixed income allocation remains our preferred approach to combating the risks of owning bonds in a rising interest rate environment. We remain comforted by the fact that volatility in the fixed income markets pales in comparison to volatility in the stock market. We will continue to monitor the investment landscape to capture attractive opportunities and protect against various forms of risk.
As always, feel free to reach out with any questions.