In the 2018 edition of The Core Conundrum, Guggenheim’s investment team discusses why it believes investing in sectors not included in the Bloomberg Barclays U.S. Aggregate Bond index is the key to generating income and enhanced risk-adjusted returns in today’s evolving fixed-income market.
- Low interest rates and a benign credit environment have encouraged some investors to reach for yield by increasing duration risk, credit risk, or both.
- Investors may be underestimating the risks posed by these investment shortcuts, particularly as U.S. monetary policy tightens and the end of the credit cycle approaches.
- At $19 trillion, the Bloomberg Barclays U.S. Aggregate Bond index represents less than half of the total U.S. fixed-income universe, leaving out $21 trillion of non-indexed securities.
- The group of securities not included or underrepresented in the benchmark index includes structured credit and floating rate instruments, which may offer comparable or higher yields and lower durations than similarly rated corporate bonds.