Fixed Income Strategy
ContactWhat does the strategy invest in?
Bonds and bond ETFs in the US market
Who is it for?
For conservative investors with an average investment horizon
Target parameters
Target return: 7-10% per annum in US dollars*
Risk: Corresponds to the risk of bond markets
Investment horizon: One year or more
Withdrawals: Anytime
* see below for details about how the expected return is calculated
Investment strategy
What makes the strategy special
It is not just during periods of declining rates that a portfolio of debt instruments can generate returns. For example, back in 2018, when prices across various asset classes fell due to Fed tightening, our EM bond portfolio returned 2.3%. For comparison, the iShares JP Morgan USD Emerging Markets Bond ETF was down 5.5% that year.
Strategy objective
The strategy seeks to capture absolute income, aiming for comparable (the same or higher) returns when the debt markets are favorable and significant outperformance during periods of falling markets.
How we do it
We use short-dated bonds to generate stable income (the passive part of the portfolio), while also investing in long-term bonds or ETFs (the active part). The active part is built based on our knowledge and expectations of the economy, fiscal and monetary policy, and other factors, and is meant to boost overall portfolio returns.
Strategy facts
Investment terms
Why it's profitable
Structure advantages
Risks
Risk Management
Description A sharp move in the exchange rate of currencies in which investments are made.
Risk management method The portfolio is denominated in US dollars and all investments are made in dollar assets in the US market.
Description A sharp change in interest rates because of central bank actions, accelerating inflation and/or depreciation of the national currency.
Risk management method We control not only the duration of the portfolio, but also the weight of each individual asset and its maturity. Possible risks are monitored every day and weighed against our knowledge and expectations of the economy, fiscal and monetary policy, and other factors.
Description An asset is unable to be sold quickly and at a price close to the market price.
Risk management method The portfolio includes only highly liquid assets that are traded in the most capital-rich and liquid market – the US debt market.
Description A borrower fails to fulfill its obligations to creditors in full (default risk).
Risk management method The portfolio is formed exclusively from high-quality assets (government debt or bonds of corporate issuers with a high credit rating of above BBB). Moving forward, investments in bonds of issuers from other DMs or EMs are possible, but they will be made only after the issuers have proven their robustness and creditworthiness during a period of a strong dollar and high rates. To ensure this, a comprehensive credit analysis will be carried out.
Description A company that has entered into an agreement with you (bank, broker) cannot fulfill its obligations on time and in the due amount.
Risk management method We are constantly working to improve the agility of our infrastructure to reduce counterparty risk, increase the efficiency of our operations and reduce fee expenses. We monitor the news flow regarding our counterparties, periodically audit their credit reports and investigate other risks associated with them (reputational, licensing, political, etc.).
Description High concentration of risk in a single asset; dependence on one counterparty, economic sector or country.
Risk management method The procedures developed over the years involve restrictions on the position limit for each issuer depending on its credit rating and liquidity in the secondary market. Decisions on adding an asset to the portfolio are made by the Investment Committee, and can be accompanied by additional conditions, such as an investment implementation period and stop-loss and take-profit levels. Even when approved by the Committee, a position is not opened for the full limit at once: the high volatility of the markets means the position will be built up gradually, giving time to confirm a hypothesis.