Written By: Gino Di Censo, Director, Global Fixed Income, CIBC Global Asset Management
Key takeaways:
On average, interest rate risk accounts for approximately 67% of a corporate bond fund’s total return, while credit risk contributes the remaining 33%.
Fixed income portions of portfolios are already typically sensitive to interest rates via core holdings, creating the need for pure credit exposure.
Modern alternative mutual fund structures now enable investors to separate credit risk from interest rate risk. This allows for targeted exposure to credit markets, creating opportunities for more consistent and fundamentally driven sources of alpha.
Integrating pure credit strategies into portfolios can offer equity-like returns with lower volatility, improving diversification and risk-adjusted performance.
Discussions around asset allocation often gravitate toward the traditional pillars: fixed income, equities, and alternatives. While these broad categories provide a useful framework, they can obscure differentiated opportunities now accessible through modern investment vehicles, particularly alternative mutual funds.