Fixed income investments are frequently utilized to reduce risk of the overall portfolio. To reduce risk, the investments selected typically have the highest credit quality (AAA) and shorter duration (<5 years). However, particularly for portfolios where taking large equity risk is not appropriate, exposure to a broader range of investment grade bonds may be desirable to the extent the available credit spreads are large in relation to the additional risk assumed.
This document assesses whether to include the investment grade corporate fixed income asset class (credit ratings ranging from AAA to BBB-) in client portfolios. We conclude that this asset class has characteristics suitable for a component of fixed income portfolios. The actual decision on whether to introduce the asset class in a portfolio will be dependent on the credit risk premium available at time of decision and the characteristics of the mutual fund or funds available to provide asset class exposure.
For the complete analysis, please download the White Paper.