July 23, 2013
Commentary about US monetary policy and fixed income investing

You may have followed the news over the last several months about US monetary policy and the impact this has had on fixed income investing. Below is an article from Jim Parker, Vice President of Dimensional Funds (DFA), discussing the rocky impact US monetary policy has had on fixed income investors. We thought you might find this interesting about your fixed income investing.

We've been in touch with Gannett, Welsh & Kotler (GWK), who manage individual bond portfolios for some clients, about their perspective on fixed income investing and the likelihood of being in a rising interest rate environment. We attended a webinar from DFA and spoke with DFA personnel about their fixed income mutual funds regarding this topic as well. The takeaway from these conversations has been that there are multiple factors involved in fixed income investing, and not just the factor of interest rates likely rising. This includes term spreads (i.e., the different yields for bonds of different maturities) and credit spreads (i.e., the different yields for bonds of different quality). DFA uses a "variable maturity strategy" with their fixed income investing, which is that they're not trying to guess the direction of interest rates; rather, they're using information in the current yield curve to figure out where the most return is to be captured for the appropriate amount of risk. GWK uses a similar approach.

Please let us know if you have any questions about your fixed income portfolio or any other topics, and thank you again for having us be your financial advisor!

Second Guessing article on US monetary policy and fixed income investing.

Please click on the link above to read Jim Parker's article.