CLS believes a balanced portfolio should include investments that exhibit low correlation to stocks in order to stabilize overall portfolio risk. Traditionally, this meant using fixed income, such as bonds or bond funds. While bonds are still important because of their historic low risk and ability to generate income, today’s rising interest rates are increasingly a concern, since they greatly impact the value of bonds.
Fortunately, there are now a multitude of alternative investments and strategies investors can access in addition to traditional fixed income to help diversify their portfolios, balance risk, manage inflation, and generate income.
CLS’s Enhanced Fixed Income Strategy generally invests in a mix of:
Traditional fixed income, such as:
- Corporate bonds
- High-yield bonds
- U.S. Treasury bills
Alternative investments, such as:
- Treasury Inflation Protected Securities (TIPS)
- Floating-rate bonds
- Senior bank loans
Alternative strategies, such as:
- Market neutral
- Managed futures
- Merger arbitrage
Explore the Benefits of Using Alternatives within a Portfolio
- Diversification. Alternatives are lowly- or non-correlated to the market, meaning they can go up or down, regardless of stock market direction. This can help reduce overall portfolio volatility, and utilizing different types of alternatives adds diversity to the portfolio.
- Liquidity. Some categories of alternatives are more liquid than traditional bonds or bond funds.
- Potential for Enhanced Returns. Many alternatives have a distinct return profile that can enhance long-term returns by reducing the impact of market drawdowns.
- Income. Many alternative investments and strategies have the ability to generate meaningful income.