The objective of the Income Strategy is to create the safest balance between risk and reward using stocks and bonds. It is specifically designed for maximum safety and current income. Bonds (not including convertible bonds) represent 55% to 80% of total assets at all times. To limit interest rate risk, the average fixed rate maturity will be less than the benchmark (Barclays US Aggregate). To mitigate credit risk, all bonds will be investment grade.
During periods with a steep yield curve, bond maturities are spread between two and eight years. “Riding the Yield Curve” will play a key role in that environment. As the yield curve flattens, bonds will be held to maturity, laddering them from zero to six or eight years. If the yield curve is inverted, maturing bonds will be rolled into short-term paper.
The stock portion of the portfolio is comprised of highly diversified, heavily income-oriented stocks. Low turnover will seek to exploit relative values within the stock’s trading range. The weighted beta of the stocks will be lower than the S&P 500, enabling a higher weighting in stocks versus bonds while still remaining in the lowest area on the risk spectrum.
Asset allocation is designed to exploit directions in interest rates as well as accelerations and decelerations in the economy. Allocation should place the portfolio on the lowest portion, in terms of risk, on the efficient market frontier, comparing stock and bond weightings. The net result should be high income, modest growth in income and low variations in total return.
To review our historical performance for the aggregate of our Income strategy, please click here.