Unconstrained Bond Fund Investments are Back in Mainstream

Posted on May 1st, 2014 at 9:00 AM

From the Desk of Jim Eccleston at Eccleston Law Offices:

Fixed income managers increasingly are selecting unconstrained bond funds as a way to provide retirees attractive returns from conservatively positioned portfolios.

From September 1, 2013, through February 28, 2014, $20.3 billion net has flowed into mutual funds within the unconstrained bond fund classification, compared to $12.4 billion of net outflows from mutual funds within the traditional bond classification.

The difference between traditional and unconstrained bond funds is that traditional bond mutual funds usually are “constrained” to a bond index such as the Barclays U.S. Aggregate, and unconstrained bond funds have no such constraints.

According to a correlation analysis, asset classes such as U.S. high-yield corporates, represented by the BofA Merrill Lynch US High Yield Constrained Index, had a correlation of only 0.26 to the broadly diversified Barclays U.S. Aggregate Bond Index fixed income benchmark during the 10-year period ended February 28, 2014.

Given the low correlation, during various periods the unconstrained approach might have offered fixed income investors more attractive total return opportunities, albeit with higher credit risk, than an approach that only considered the passively allocated mix of the Barclays U.S. Aggregate Bond Index.

So the dreary total return of fixed income period could provide an opportunity for unconstrained approach investors. 

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags:

Return to Archive

TESTIMONIALS

Previous
Next

This was the best of all possible outcomes and I cannot thank you and the team enough.

Michael S.

LATEST NEWS AND ARTICLES

October 26, 2021
Former Advisor Fails To Reverse Bar After Alleged $1 Million Theft From RBC

A former RBC Wealth Management advisor lost his bid to reverse an industry bar, according to an appellate decision issued by the Financial Industry Regulatory Authority (FINRA).

October 25, 2021
Firms Walk Thin Regulatory Line In Referring Self-Directed Clients To Advisors

While online trading platforms have surged in popularity during the pandemic, brokerage firms view self-directed investors as a source of new clients.

October 22, 2021
TIAA Sues Former Advisors For Allegedly Soliciting Clients

Teachers Insurance and Annuity Association of America (TIAA) filed suit against three of its former Connecticut advisors for allegedly soliciting TIAA clients to join them at their new firm.