December 2018 | Public Version

Over a 30-year period, traditional fixed income products performed extremely well and acted as a counterbalance to equity portfolio exposure due to an ultra-low interest rate environment. As interest rates continue to rise in a positive economic environment, many bond funds are now in negative territory this year. For investors that only hold a handful of traditional fixed income products in their portfolios, this may be increasingly problematic if rates continue to climb upward. We believe that now is the time for investors to consider a more diversified approach to fixed income, by reallocating a portion of their traditional fixed income allocation to actively managed satellite fixed income investments. These investments potentially offer non-correlated returns, protection against rate hikes and market volatility, while
providing access to non-traditional core bonds.

We believe it is important to diversify your bond portfolio, just as you would your equity portfolio. Although there is no magic number of funds to incorporate into a portfolio, many bond portfolios are underexposed to the broader fixed income universe. This is problematic as it could lead to a lack of diversification, which could result in higher risk and lower overall returns for investors.

Adding satellite fixed income funds to your portfolio can help to offer non-correlated returns with the potential of protecting against interest rate increases, while at the same time offering investors access to markets that are not contained in traditional fixed income investments.

Important Risk Information

Investing in fixed income mutual funds carries certain risks. The value of a fund may decrease in response to the activities and financial prospects of an individual security in a fund’s portfolio. Some funds may invest in high yield or junk bonds which present a greater risk than bonds of higher quality. If a fund invests in asset-backed securities or mortgage-backed securities, the fund is subject to the risk that, if the underlying borrowers fail to pay interest or repay principal, the assets backing these securities may not be sufficient to support payments on the securities. Other risks include credit risks and interest rate risks for floating rate loan funds and other fixed income funds. Interest rate risk is the risk that bond prices overall, including the prices of securities held by a fund, will decline over short or even long periods of time due to rising interest rates. Certain funds are non-diversified and may invest a greater percentage of their assets in a particular issue and may own fewer securities than other mutual funds.

Changes in short-term market interest rates will directly affect the yield on the shares of a fund whose investments are normally invested in floating rate debt. Floating rate loan funds tend to be illiquid, a fund might be unable to sell loans in a timely manner as the secondary market is private, unregulated inter-dealer or inter-bank re-sale market. These factors may affect the value of your investment.