So I have outlined an SAA for my own portfolio and have a fairly solid idea of how I will implement my equity and alt inv allocations but I really have no idea how to manage FI or select a manager.
I want exposure to primarily USD denominated assets as my expectation is that the USD will continue to strengthen against the CAD through out my time horizon. That said what I am really looking for is a fund whether it be actively managed or an enhanced index. In terms of attributes, I very much care about downside risk adjust return and cost efficiency which would lead me to believe some sort of index fund optimizaded with a vol constraint would fit but the reality is I don’t give a fuck about tracking risk and I am fundamentally opposed to investing money with a semi active or active manager if all I am going to get is the indexes returned slightly skewed to a particular risk/return factor.
So what are my options? are there any active funds with responsible MERs that also generate decent long run sharpe ratios or am I best off just throwing my money into some MSCI Barra min vol index?
Yeah I’d like something with a short duration as I view IR in the states particularly and the developed world in general will increase in the short to mid term 2-5+ years.
All I am really looking for is some uncorrelated assets to diversify the 70-80% allocation i have to equities/atl investments. I think what I really need is a decent fund screener so I can find funds with decent sharpe ratios and r-mad/std dev or whatever that sortino ratio formula is.
The primary function of Fixed Income is to provide an uncorrelated asset to balance your other exposures. If you have defined liabilities, it can also be used to neutralize them and provide a benchmark relative to your liabilities. Unless you have institutional sized funds, it’s probably not worth a lot of time to research in and out (issues, or managers) to try to squeeze an extra few bps out of your fixed income… get that by being better with your equities.
All of that suggests to me that unless you have a LOT of funds to invest, it may make more sense just to ladder treasuries and perhaps investmet quality corporates. If you are doing treasurys (as opposed to corporates), you may not even need to use a manager, which can save you some bps right off the bat.
If you are worried about LT rates, then maybe ladder out only 5 years instead of the whole yield curve. Remember that if stocks take a major dive, people will rush back to fixed income, so although rates are more likely to rise in the future than not, it’s not a foregone conclusion that this will actually happen.
High yield is really a separate asset class in my mind. It’s fixed-income like in terms of the legal structure, but behaviorally, they can act more like equities. The combination of both tends to make them relatively uncorrelated to both equities and fixed income, because they tank at a different part of the business cycle, and that’s the main argument for having them. But in my mind that’s best understood as a separate asset allocation, and not a fixed income decision.