THE CORE CONUNDRUM - Guggenheim Partners

The Changing of the Guard
The Future of Core Fixed-Income Management
Traditional View: Barclays Agg
WEIGHT
YIELD
74.7 %
gov.-related debt
U.S. Treasuries
Agency MBS
Agency Bonds
Corporates
RMBS n/a
CMBS
Taxable Municipals
ABS
Weighted-Average Yield
0%
0.9% U.S. Treasuries
1.0%
0.9%
1.3%
1.7%
1.7%
2.2%
2.7%
3.2%
Agency MBS
Agency Bonds
Corporates
RMBS
CMBS
Taxable Municipals
ABS
Weighted-Average Yield
1% 2% 3% 4% 5% 0% 1%
U.S. Treasuries WEIGHT
Agency MBS
U.S. Agency Treasuries Bonds
Agency Corporates MBS
Agency Bonds RMBS
Corporates CMBS
Taxable Municipals RMBS n/a 3.2% Taxable Municipals RMBS
4.8% 5.0%
CMBS ABS
Weighted-Average Taxable Municipals Yield
ABS 0%
Weighted-Average Yield
Future View: Guggenheim Core Fixed-Income
0%
0.9% U.S. YIELD Treasuries
1.0%
2.2% Agency MBS
2.3%
0.9% 1.3% U.S. Agency Treasuries Bonds
1.0%
2.3%
2.2% 2.7% Agency Corporates MBS
4.2%
gov.-related debt
2.3%
n/a 1.3% Agency Bonds RMBS
2.3%
5.0%
1.7%
16.6 %
2.7% Corporates CMBS
4.2% 4.7%
0.9% 1.7%
CMBS ABS
4.7% 4.9%
1.7% 3.2% Weighted-Average Taxable Municipals Yield
4.2% 4.8%
1% 0.9% 2% 3% 4% 5% ABS 0% 1% 2% 3% 4% 5% 4.9%
1.7%
Weighted-Average Yield
4.2%
1% 2% 3% 4% 5% 0% 1% 2% 3% 4% 5%
With the traditional view of core fixed-income management quickly becoming antiquated in today’s
U.S. Treasuries
1.0%
low-yield environment, investors must begin looking forward towards the future of core fixed-income
2.2% Agency MBS
2.3%
management. Source: Barclays, Guggenheim Investments. Data as of 12/31/2012. Sector allocations are based on the representative
Agency Bonds
2.3%
account of the Guggenheim Core Fixed-Income Strategy and excludes cash.
2.7% Corporates
4.2%
%
RMBS
CMBS
5.0%
4.7%
3.2% Taxable Municipals
4.8%
%
ABS
Given the overwhelming emphasis on total return,
Weighted-Average Yield
4.2%
3% 4% 5% 1% 2% 3% 4% 5%
investors must be vigilant 0% in identifying the risks
By remaining tightly aligned to the Barclays Agg,
which is currently bloated with low-yielding
involved in reaching for incremental yield, since government-related debt, investors are giving up
“not all yield is created equal.” Employing investment the flexibility to take advantage of undervalued
shortcuts, such as increased credit or interest sectors and underweight unattractive ones. In
rate risk, solely to generate yield may come at the a market coping with unprecedented monetary
expense of future performance. Achieving yield conditions, we believe the surest path to underperformance
is to remain anchored to outdated core
targets without assuming undue risk has proven
extremely difficult under the traditional framework. fixed-income conventions of the past.
We believe it is achievable under a broadened
investment framework.
4.9%
15 | FUTURE INVESTMENT BLUEPRINT GUGGENHEIM PARTNERS