Adding Value With Ultra-Short Fixed Income

August 2012

Northern Trust paper explains how investors can potentially improve returns while still seeking to preserve principal, even in a rising interest rate environment.

Ultra-short fixed income strategies can be an attractive option for any investor looking to improve returns while still seeking to limit principal volatility, even during rising interest rate environments.

As explained in a recent Northern Trust paper, an ultra-short strategy covers the yield curve from one day to three years, thus providing some of the stability and liquidity of money market funds and the higher return potential of short duration (one to three years) bond portfolios. Investors willing to increase risk exposure moderately and extend the investment horizon to 12 months or longer (reducing daily liquidity) can realize higher current yields and the potential for higher total returns with ultrashort strategies.

Given the limitations of today’s environment, investors may need to rethink cash strategies. Money market funds, the traditional short-term vehicle of choice for conservative investors, face a number of constraints in the current investing environment. These are keeping money market returns extremely low, and limiting their usefulness to investors who are interested in seeking incremental return in addition to limited volatility.

Additional factors influencing the current investing environment include net-zero interest rates, regulatory constraints and global sovereign credit concerns.

To learn more, download the “Adding Value With Ultra-Short Fixed Income” paper.

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