Strategic Bond Funds has become one of the most popular means of investment among investors who wish to diversify their portfolio. This bond fund is more popular during a period of crisis or difficult market conditions when investors seek to hand over the allocation of their bond to an expert. But it difficult to select the right one is not that simple because every strategic bond fund varies in its approach to market maturity and the interest-rate risk. Also, a strategic bond shall differ in terms of the rewards for a younger investor and the stable income seeking retiree. Therefore, you need to keep certain things in mind before investing in a Strategic Bond Fund.
You need to check your own bond exposure before taking a chance at the bond fund because you do not want an overlap of allocation with your current/existing bond funds. This can result in risks rather than diversification of one’s profile. By means of comparison you can check how you can decrease the risk factor rather than an increase.
Know your goals
This is required in order to know what you can achieve by investing in a Strategic Bond Fund. If your goal is to achieve a high-yield exposure, then aggressively positioned Strategic Funds are apt for you. Also, you need to be comfortable with an unpredictability that can be equivalent to an equity fund and a gilt fund. This way, you shall ensure higher returns. If you are only looking out for a Strategic Fund to diversify your portfolio, then a Strategic Fund that provides exposure to government bonds is the perfect option.
You need to have a perfect understanding of your portfolio’s reward and risk profile. The following terms need to be kept in mind for a better strategy.
Credit Exposure: Earlier, one was required to hold a minimum of their assets in high-yield bonds but now things are a bit different. Funds nowadays are able to capitalise on opportunities and vary the credit quality.
Maturity: Strategic Bond Funds can make adjustments in the interest-rate exposure; therefore, it displays characteristics of flexibility.
Derivatives: Derivatives can increase the flexibility of the portfolio and also reduce transparency of the investment process.
This is necessary to determine how much you’d wish to invest in your portfolio. It will all depend on the type of fund you have selected. If you think of high yield due to an aggressively positioned fund, then you need to be at a fairly modest position. Also, you need to reduce this exposure once you reach the point of retirement. If your fund is not that aggressive or as you can call it, mild mannered, then it shall be able to adapt it to the ever-changing market conditions. This shall also be helpful once you retire.
So you need to be sure the kind of investment fund you seek, so that you maximize on your gains and minimize on those risks.