Summit’s investment managers can add value to a bond portfolio in a variety of ways. By adjusting the maturity of the bonds held in a portfolio, Summit can take advantage of changes in the level of interest rates.
If rates are expected to rise, then maturities are shortened to cushion the portfolio from the negative impact that higher rates will have on bond prices. Conversely, a forecast of falling rates would call for a lengthening of maturities to lock-in both the higher income stream that the current high rates will produce as well as to create capital gains that will result as bond prices rise in reaction to the rate decline.
Fluctuating Bond Prices Can Benefit Investors
Bond prices also move in response to changes in the perceived quality of the issuer. An improvement in the issuer’s financial condition can lead to quality upgrades and higher bond prices whereas deteriorating fundamentals will end in lower bond prices as the risk of default increases.
It is possible to benefit from these movements by study of the issuer’s financials in an effort to anticipate moves in either direction.
If a bond is held that has been issued by an entity with declining financial health, the portfolio will benefit if that holding is replaced by a bond of an entity that enjoys an improving financial picture.
Careful Monitoring Helps Improve Performance of Bond Portfolios
Summit limits its fixed income investments to those rated single A or better, thereby avoiding those issuers with a higher level of default risk. Still, within the higher rated bonds that Summit purchases for its clients, there is the opportunity to positively impact performance through the monitoring of bonds for upgrade or downgrade.
In contrast to a mutual fund, Summit will work directly with you to adjust your portfolio to control the possible tax consequences.
