Diversification Calls for Duration

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  • 02 mins 03 secs
A bond portfolio should include some duration or it won’t provide an adequate buffer when equities fall. See how Invesco addresses the current challenges facing fixed income investors. Visit invescoglobalbond.ca.

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Invesco Canada

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A bond portfolio must include some duration or it won’t provide an adequate buffer when equities fall.

Jason MacKay:
So, another question we get a lot about is duration. So, if you're of the mindset that rates are going to stay low, yields are going to be benign. How do you feel about duration today? How do you think about it? And, are you even afraid of it today?

Matt Brill:
We're not afraid of it. So, we think the demographics are very positive for duration. We think overall yields are going to be low for a number of years. We're in a Goldilocks environment, if you will, where inflation is not too high, growth is not too high. But, people get concerned about duration because they do math and they say, "if the duration is 'X' and yield is moved by 100 basis points, then I'm going to lose 100 x 'X'". And, we say, "there's a lot of mitigating factors to this." Not all duration is created equal. You can have corporate securities that actually have their credit spreads go lower if interest rates are rising so that can be helpful. But, if risk goes off and you have a severe risk event whether it's through equities or some geopolitical situation, the safest and the only way we've been able to find negative correlation to equity markets is through duration. And, there is always, or just about always, a flight to quality that happens. And so, if you eliminate all the duration out of your portfolio, all you have is credit spread is correlated equities. So, you need to have some duration in your portfolio otherwise it's going to act like an equity product. So, we're not worried about it. It's important to have duration in the portfolios because the day that you want to have your bond fund act like a bond fund, it has to have some duration in it or it's not going to act like a bond fund.

Recorded on September 27, 2017
These are the personal views of the Matt Brill as at the date indicated, and not necessarily the views of Invesco Canada. The portfolio manager's comments are for information purposes only and should not be considered a recommendation to buy or sell any security. The portfolio manager's views may have changed since the date indicated and are not intended to convey any specific investment advice.

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Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.

Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates. A higher/longer duration generally means the price of a fixed income produc twill be more sensitive to changes in interest rates. Invesco Fixed Income (IFI) is a unit comprising Invesco Senior Secured Management, Inc. of New York, U.S, Invesco Advisers, Inc. of Atlanta, U.S.; Invesco Asset Management Ltd. of London, U.K.; and Invesco Canada Ltd.