Paul J. Lim’s June 30, 2012 New York Times article, “Searching for Calm in the Bond Markets,” shows how investors can limit volatility in their bond portfolios, and the article’s conclusions are right in line with our low volatility approach to fixed income investing, our Flexible Income strategy.
Lim interviews Robert V. Gahagan, a senior portfolio manager for American Century Investments, who points to a “the virtue of a multi-sector bond portfolio.” This is a good description of the Monthly Flexible Income Portfolio in NoLoad FundX, which invests in short- and intermediate-term corporate and government bonds as well as high yields, strategic bond funds and foreign bonds.
Lim also spoke with Kathy A. Jones, fixed-income strategist at Schwab, who said that “there’s a case to be made for keeping a small part of a diversified bond portfolio in high-yield debt.” Our Flexible Income strategy uses high yield bonds, but it limits exposure to a maximum of 30% of the portfolio. It currently holds about 15% in high yields.
Finally, Lim looks at using foreign bonds. “For fixed-income investors who are making bets overseas, one idea is to use a hedged fund rather than an unhedged one,” he writes. We’ve also opted to use hedged foreign bond funds in our Flexible Income portfolios. The Monthly Flexible Income Portfolio currently holds the same hedged foreign bond fund that Lim highlights in his article: PIMCO Foreign Bond U.S. Hedged (PFODX).