Investment Education

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Sustainable Investing: Understanding ESG in Bonds
Understanding Preferred Securities
Understanding Hedged Share Classes
Understanding Green, Social and Sustainability Bonds

Risk Factor Diversification

Risk Factor Diversification

Traditional portfolio construction approaches, which focus on asset class diversification, may fall short of investors’ goals. A more efficient diversification strategy may be to allocate across the underlying “risk factors.”

Multi-Factor Strategies

Multi-Factor Strategies

As investors seek to build diversified equity allocations with the objective of higher returns, they may consider multi-factor smart beta strategies, which offer the potential for attractive performance and increased diversification with lower fees than traditional active equity solutions.

Interest Rate Swaps

Interest Rate Swaps

Interest rate swaps have become an integral part of the fixed income market. These derivative contracts, which typically exchange – or swap – fixed-rate interest payments for floating-rate interest payments, are an essential tool for investors who use them in an effort to hedge, speculate, and manage risk.

Inflation-Linked Bonds (ILBs)

Inflation-Linked Bonds (ILBs)

Inflation-linked bonds, or ILBs, are securities designed to help protect investors from inflation. Primarily issued by sovereign governments, such as the U.S. and the UK, ILBs are indexed to inflation so that the principal and interest payments rise and fall with the rate of inflation. Inflation can significantly erode investors’ purchasing power, and ILBs can potentially provide protection from inflation’s effects. ILBs may also offer additional benefits in a broader portfolio context.

Inflation

Inflation

Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates to government programs, tax policies, and interest rates. Understanding inflation is crucial to investing because inflation can reduce the value of investment returns.

High Yield Bonds

High Yield Bonds

High yield bonds – defined as corporate bonds rated below BBB− or Baa3 by established credit rating agencies – can play an important role in many portfolios. They typically offer higher coupons than government bonds or high grade corporate bonds (or, corporates) and have the potential for price appreciation in the event of an improvement in the economy, or performance of the issuing company (of course, if these conditions worsen, then prices can also go down). Because the high yield sector generally has a low correlation to other sectors of the fixed income market along with less sensitivity to interest rate risk, an allocation to high yield bonds may provide portfolio diversification benefits. In addition, high yield bond investments have historically offered similar returns to equity markets, but with lower volatility.