Enhancing Diversification Through Fixed Income
Because bonds behave independently from equities, adding fixed-income investments to a portfolio can improve its overall diversification. Fixed-income securities expand the opportunity of investors to participate in the performance of capital markets and provide a more reliable source of income than other asset classes.
A Research-Based Approach to Bond Investing
At NICH Capital Partners, we use fixed-income securities as a primary source for portfolio stability, safety, and income where desired. Our focus and criteria for fixed-income investing are credit risk and diversification. We look to build a high-quality portfolio based on in-depth research of municipalities and corporations that issue debt.
Balancing Yield, Maturity, and Credit Risk
Relative performance in fixed income is largely driven by two dimensions: bond maturity and credit quality. Bonds that mature further in the future are subject to the risk of unexpected changes in interest rates. Bonds with lower credit quality are subject to the risk of default. Extending bond maturities and reducing credit quality increase potential returns.
A Flexible, Yield Curve–Driven Bond Strategy
Since it is impossible to predict what will happen with interest rates in the future, we diversify broadly and use a “variable maturity” or ladder approach in most of our portfolios. To maximize expected returns, we choose shorter maturities in flat or inverted yield curve environments and longer maturities in upwardly sloped curves. Maturities are shifted in response to changes in the current yield curve.