The case for multi-sector credit

With current yields low, the prospects for total returns from core fixed income appear subdued in the near term, and investors are seeking ways to achieve greater returns from their bond allocations.

In an environment where global growth has been improving and investors are focused on the risk of higher interest rates, we believe a multi-sector credit (MSC) approach can play several valuable roles in investors’ portfolios.

For example, it can:

• Complement a core bond allocation by providing greater yield with less interest rate risk;
• Provide potentially better risk-adjusted returns and opportunities to add value through active sector rotation, in comparison with an allocation to a single high-yielding sector; and
• Serve as an alternative to equities, potentially providing upside participation in growth environments yet with less downside when equities perform poorly.

Less rate risk – with more income

Despite recent increases in interest rates, yields on high-quality fixed income investments such as government bonds and investment-grade credit continue to languish at near-record lows. These low yields have left investors frustrated by the dearth of income from their core bond portfolios and justifiably concerned about the prospect that eventual increases in rates will erode total returns from these investments.

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Supporting documents

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