Solving the Core Conundrum: A Strategy to Generate Income and Enhance Risk-Adjusted Returns in Today’s Low-Rate Environment

NEW YORK, April 12, 2017 -- Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today released the 2017 edition of  The Core Conundrum, which details the Guggenheim approach to investing in fixed-income markets that have been distorted by central bank policies.

“In our view, investors must gravitate to sectors where value remains unexploited,” say the report’s authors, led by Scott Minerd, Chairman of Investments and Global Chief Investment Officer, and Anne Walsh, Assistant Chief Investment Officer, Fixed Income. “Achieving yield targets while maintaining a high-quality portfolio is possible, but it requires a willingness to look beyond the benchmark.”

Among the highlights in the 20-page report:

• Extraordinary monetary easing since the 2008 financial crisis drove yields on U.S. Treasury and Agency securities to historic lows, and yields have risen only modestly since the Federal Reserve began to tighten policy in 2015.
   
• Low interest rates and a benign credit environment have encouraged some investors to reach for yield by increasing duration risk, credit risk, or both. Investors may be underestimating the risks posed by these investment shortcuts, particularly as U.S. monetary policy tightens.
   
• Most core investors benchmark to the Bloomberg Barclays U.S. Aggregate Bond Index (the Agg), which is dominated by low-yielding government-related securities. At $17.4 trillion, the Agg represents less than half of the total fixed-income universe, leaving out $21.7 trillion of non-indexed securities.
  
  
• This group of securities not included or underrepresented in the Agg includes commercial asset-backed securities and collateralized loan obligations, which may offer comparable (or higher) yields and lower durations than similarly rated corporate bonds. Investors concerned about liquidity in these sectors should also consider how structural changes in the corporate bond market may cause liquidity to vanish when it is needed most.
  
  
• For investors with longer duration targets, we believe a barbell approach that combines short-maturity, floating-rate credit and long-duration, fixed-rate bonds can meet their yield and duration targets while offering some protection against rising rates.

For more information, please visit http://www.guggenheiminvestments.com.

About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with $209 billion¹ in assets across fixed income, equity, and alternative strategies. We focus on the return and risk needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers, and high-net-worth investors. Our 275+ investment professionals perform rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and underfollowed. This approach to investment management has enabled us to deliver innovative strategies providing diversification and attractive long-term results.

¹Guggenheim Investments total asset figure is as of 12.31.2016. The assets include $12.3 billion of leverage for assets under management and $0.4 billion for assets for which Guggenheim provides administrative services. Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.

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This article is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product, or as an offer of solicitation with respect to the purchase or sale of any investment. No representation or warranty is made by Guggenheim Investments or any of their related entities or affiliates as to the sufficiency, relevance, importance, appropriateness, completeness, or comprehensiveness of the market data, information or summaries contained herein for any specific purpose. The views expressed in this presentation are subject to change based on market and other conditions. The opinions expressed may differ from those of other entities affiliated with Guggenheim Investments that use different investment philosophies. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.

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Guggenheim Partners 
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