A new era for fixed income is arriving after years of disappointment
After more than a decade of dismal fixed-income performance, with Canadian indexes eking out low single-digit annualized returns, the tides are finally shifting.
Interest rates are higher than they have been since the early 2000s and the Bank of Canada recently lowered rates for the first time since 2020, so investors who once shunned fixed income are now racing to take advantage of these tailwinds.
If you read the headlines debating where interest rates will go, you may think that being an expert in macroeconomics and predicting the path of interest rates are prerequisites to successfully investing in fixed income. But nothing could be further from the truth. Not even central bankers know where interest rates will be in the coming years, and it’s often a coin toss as to what will happen in the short term.
The real key to investing in fixed income lies in selecting appropriate fixed-income managers who aren’t bound by the whims of markets and interest rates and can instead take an active approach to capitalize on opportunities as they appear and mitigate risk during times of heightened uncertainty.
Unlike the equities market, where active managers can lag passive indexes such as the S&P 500, the fixed-income market has far greater inefficiencies, meaning managers with proven expertise, investment processes, risk management, and agility can take advantage of volatility and mispricing to generate higher long-term returns with not much more risk than passive strategies.
Instead of worrying about the nuances of yield curves, credit spreads, the large universe of fixed-income securities and tactical portfolio positioning, leaving the details to experts who live and breathe fixed income is usually the safer bet. That way, one
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