May 17, 2012 at 07:00 AM EDT
Using ETFs To Measure Interest Rate Risk
When managing a fixed income portfolio, there are two primary risk factors that financial advisors consider: credit risk and interest rate risk. The superstar bond fund managers of the world have set themselves apart by a superior ability to identify these risk components–and then select securities that offer superior risk-adjusted returns [see also Better-Than-AGG Total Bond Market Portfolio]. The first risk factor is easy enough to understand; the more likely an issuer of debt is to default and leave bondholders with nothing, the greater the return that will be demanded by those lending money. Companies and countries with stellar credit ratings and strong cash flow profiles can borrow funds at relatively low rates of interest, while more speculative issuers will have ot pay significantly more in interest to compensate for the additional credit risk. Disparities in credit risk explain why Wells Fargo can issue debt with a 3.75% coupon, while [...] Click here to read the original article on ETFdb.com. Related Posts: Guggenheim Debuts Three More BulletShares Bond ETFs Bond ETFs For Every Objective Getting The Most Out Of Your Bond ETFs Beyond LQD: Exploring Corporate Bond ETF Options June ETF Roundup: Launches and Filings
When managing a fixed income portfolio, there are two primary risk factors that financial advisors consider: credit risk and interest rate risk. The superstar bond fund managers of the world have set themselves apart by a superior ability to identify these risk components–and then select securities that offer superior risk-adjusted returns [see also Better-Than-AGG Total Bond Market Portfolio]. The first risk factor is easy enough to understand; the more likely an issuer of debt is to default and leave bondholders with nothing, the greater the return that will be demanded by those lending money. Companies and countries with stellar credit ratings and strong cash flow profiles can borrow funds at relatively low rates of interest, while more speculative issuers will have ot pay significantly more in interest to compensate for the additional credit risk. Disparities in credit risk explain why Wells Fargo can issue debt with a 3.75% coupon, while [...]

Click here to read the original article on ETFdb.com.

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