Finding lower-risk income streams in the US short duration market
WHY A US SHORT DURATION STRATEGY ?
Investors looking for reliable and safe income streams have few options in today’s market. However, US short duration assets, which typically have a term of five years or less, could be a solution.
These securities often serve as a foundation for a diversified portfolio with stable return potential and low volatility. They generally have the potential to offer more attractive returns than similar assets, with only modest increases in maturity and duration profiles.
US short duration assets also have a long history of providing attractive risk-adjusted returns through market cycles, with investment managers able to pick from a broad and diverse universe that includes short-dated government and corporate bonds.
At BNP Paribas Asset Management we seek to build income-generating portfolios with a strong focus on capital preservation and diversification.
- Capital preservation is best achieved through adherence to our rigorous risk management framework, which is grounded on diversification of investment ideas
- Income is enhanced by specialist allocations across multiple asset and the ability to take off-benchmark positions
- Diversification is best achieved through combining multiple uncorrelated return streams, which can in turn improve the overall risk-return profile of the portfolio
Our portfolio construction process involves three clearly defined steps:
- Interest rate duration: positioning the portfolio for an acceptable level of market volatility for the current interest rate environment
- Sector allocation: diversifying exposures across fixed income sectors
- Security selection: bottom-up identification of securities with attractive risk return characteristics and stable cash flow streams
Risk management and environmental, social and governance (ESG) considerations are integrated throughout these steps.
We have over 40 years’ experience managing short duration solutions, having launched our first strategy in in 1974.
Ken O’Donnell, head of short duration fixed income and senior portfolio manager, manages the team. He has over 20 years of investment experience and is responsible for the strategy and its track record since 2002. He is supported by Jane Song and Ted Jarzynka. The team is based in New York.
Investments are subject to market fluctuations and the risks inherent in investments in securities. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay, the strategies described being in risk of capital loss. There is no guarantee that the performance objective will be achieved. Past performance or achievement is not indicative of current or future performance. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks.