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We believe investors should be compensated for the risks they take — in all market environments and any investment strategy.
Overview
Stability When It Is Needed Most
As the largest portion of fixed income portfolios, core bond strategies must avoid excessive or undue risks to provide consistent returns and a source of stability during times of market stress. That’s why we built a core bond strategy on a foundation of macroeconomic and capital markets expertise pairing top-down and bottom-up research and risk management so that it performs as intended in all market environments.
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Principles of Investing
Focus on Consistency – Avoid Large Concentrated Bets
When the bond markets experience turmoil the top performing managers have historically taken a hard hit likely due to large bets across various sectors or duration. Diversifying your sources of return may be critical to providing more consistent outcomes.
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Percent of Top Quartile Managers That Declined in Peer Rank After a Credit Event in the Market
Source: eVestment, FRED, Northern Trust Asset Management. Data from January 1, 1993 to June 30, 2023. Credit events are defined as quarters where the absolute % change in 10-Year Treasure yield is greater than the average +1 standard deviation. A decline in peer rank is defined as a decline in the trailing 1-year return peer rank from the quarter end before the credit event to the quarter end of the credit event. The analysis was conducted using the eVestment U.S. Core Fixed Income Universe. Historical trends are not predictive of future results.
Principles of Investing
We Favor Bonds That Increase Risk-Adjusted Returns
Bonds at the lower-end of the investment grade universe have historically offered higher risk-adjusted returns with minimal added default risk.
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Sharpe Ratio by U.S. Credit Quality (last 20 years)
Source: Northern Trust Asset Management, Morningstar Direct, S&P Global. Sharpe ratio data as of June 30, 2023. Market indices are used for the Sharpe ratio calculations: ICE Bofa AAA US Corporate TR represents AAA, ICE Bofa AA US Corporate represents AA, ICE Bofa A US Corporate TR represents A, and ICE Bofa BBB US Corporate TR represents BBB. Average default rates from S&P Global, Default, Transition, and Recovery: 2022 Annual U.S. Corporate Default and Rating Transition Study. A security rating is not a recommendation to buy, sell or hold securities. The rating may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of the other ratings.
Principles of Investing
Protect Against Defaults to Deliver Consistent Outcomes in Any Market
The risk-reward tradeoff between yield and risk needs to be consistently assessed and monitored, as the impact of even 1 – 2% in defaults can quickly erode any previous short-term yield gains.
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High Yield 3-Year Rolling Returns vs. Default Rate Since 1989
Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023. High yield is represented by Bloomberg US Corporate High Yield Index. Past performance is not indicative or a guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. it is not possible to invest directly in any index. Indexes are the property of their respective owners, all rights reserved.
Principles of Investing
Favor Diversification Over Concentration
Portfolio concentration can add idiosyncratic risk that we systematically avoid by effective diversification that involves setting individual security weight constraints, diversifying by maturity, industry, sectors, countries and currencies.
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10 Year Median Peer Group Ranking — eVestment U.S. Core Universe
More Diversifed Strategies is defined as strategies that rank in top 50% of peer group universe for total number of holdings, Less Diversified Strategies are those that appear in the bottom 50% of the universe. Historical trends are not predictive of future results. Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023.
Principles of Investing
Avoid Speculative Derivative Bets That Increase Risk
We purposefully avoid esoteric securities and short-term speculative positions that can be costly during times of stress in order to avoid unintended outcomes that may occur with the increased complexity and risk.
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Median Manager Peer Group Ranking Return During 20% Market Corrections (eVestment U.S. Core Universe)
The use of derivatives was determined by a field in eVestment that asks if the manager uses derivatives in the management of the product. Historical trends are not predictive of future results. Source: eVestment, Northern Trust Asset Management. Data as of June 30, 2023.
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How it works
Define Investment Universe
The strategy invests in a broad range of bonds including, corporate, asset-backed, government and municipal securities with an average credit quality portfolio target of A/BBB.
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How it works
High Conviction Economic and Interest Rate Expectations Guide Portfolio Construction
Portfolio managers examine the macroeconomic environment, interest rate expectations, the shape of the yield curve and credit market conditions to guide strategy duration, yield curve, credit, and sector and positioning.
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How it works
Fundamental Credit Research and Relative Value Assessment Drive Security Selection
Fundamental credit research is designed to find bonds within the 1-30 year maturity range, with lower chances of negative credit events and a superior risk/return profile relative to industry peers.
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How it works
The Portfolio is Broadly Diversified Among All Fixed Income Risk Exposures
Macroeconomic research drives duration, yield curve, credit and sector exposures to avoid concentrated market risks and losses associated with significant market shifts.
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Risk Aware Investors
The strategy is designed to protect portfolios against significant and unpredictable equity market events.
Portfolio
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Team Expertise
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Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTAM’s efforts to monitor and manage risk but does not imply low risk. This information is general in nature and should not be construed as tax advice. Please consult a tax advisor or professional as to how this information may affect your particular circumstance.
Not FDIC Insured | May Lose Value | No Bank Guarantee
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
