Expanding your income horizons

Expanding your income horizons

by Michael Hyman, Invesco Canada

Whether you’re building infrastructure such as roads and buildings, looking to grow a business, or even beginning a new fitness campaign, like most things in life, long-term planning requires establishing a strong foundation or base. Investing for the long haul or planning for retirement is no different. Investors need to build from a strong foundation, or core portfolio. One of the key elements of that portfolio, in our view, is a significant allocation to high-quality global bonds.

The Invesco Global Bond Fund team has high conviction that a strong core portfolio of high-quality global bonds can help fixed-income investors: potentially strengthen their income stream, help preserve principal and complement their stock or domestic bond holdings. We supplement the Fund’s core with global opportunities that are designed to generate additional income and growth potential.

Our core – which represents at least 75% of the Fund – is allocated to investment-grade foreign government and quasi-government, corporate and structured bonds, such as mortgage and asset-backed securities. One of the potential benefits of having higher-quality bonds in a portfolio is that they can limit volatility during times of stock-market turmoil. Historically, when stocks have gone down, high-quality global bonds have gone up. This relationship is important because it may have the potential to help investors’ portfolios withstand rough times in volatile markets. In addition to acting as a complement to stocks, global bonds can also help supplement domestic bonds in investors’ overall portfolios.

 

Source: FactSet Research Systems Inc. Data is as at December 31, 2015. Bonds are represented by the Barclays Global Aggregate Bond Index (Hedged to CAD), and stocks are represented by the MSCI World Index (Net), in local currency. MSCI World Index local currency returns serve as a proxy for CAD hedged returns. Returns shown are for the average 12-month calendar year-end. Past performance does not guarantee future results.

Finding opportunities

What about the other 25% or so — the “plus”? Our portfolio managers and research analysts seek out what they believe to be the best opportunities from high-yield and emerging markets. These high-conviction opportunities carry additional risks (for example, high-yield bonds involve a greater risk of fluctuating value and default than high-quality bonds). However, they also provide the potential for additional income and growth. When most investors think about diversification, they often focus on investing across asset classes such as stocks and bonds. But we believe it’s important to consider diversifying across fixed income as well.

Selecting bonds

Our investment teams scour the globe for ideas because we believe individual bond selection is a key differentiator for the Fund. Our approach incorporates both macroeconomic and credit-level research to create information advantages that we believe can help us exploit investment opportunities in any geographical region or market environment. Macro factors that we consider include duration, yield curve, market segments and sector selection. Intensive fundamental credit and technical research enables us to arrive at independent investment decisions about individual securities.

The goal, in the end, is to uncover ideas that have the potential to generate income and growth for our clients while managing risk. We take a long-term view of the markets and themes that present themselves, but we also have the ability to tactically capitalize on opportunities as they arise due to our extensive global resources.

This post was originally published at Invesco Canada Blog

Copyright © Invesco Canada

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