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Description
The session offers perspective on how Dimensional builds and manages fixed income portfolios to meet specific investor goals. It introduces term and credit as fixed income dimensions and explains how Dimensional uses market pricing, as demonstrated through changes in the yield curve and credit spreads, to pursue higher expected returns in broadly diversified strategies. The session includes discussions on applying Dimensional’s variable maturity and variable credit approaches, gaining access to global yield curves while hedging currency risk, and using the implied credit rating in market prices. The speaker explains the firm’s approach to value-added trading and maps fixed income strategies by term and credit dimensions.
Learning Objectives
1. Dimensional believes, based on academic and empirical research, that market prices/yields contain information which can help construct fixed income portfolios, monitor issuer creditworthiness and trade effectively and efficiently. 2. On average, wide term and credit spreads are associated with higher expected term and credit premiums. Dimensional's variable maturity approach is used to capture expected term premiums. This approach shifts average portfolio maturity/duration towards the most favorable expected return segment of the yield curve. Dimensional's variable credit approach is used to capture expected credit premiums. This approach emphasizes lower credit quality (higher credit quality) investment grade bonds when credit spreads are wide (narrow). 3. Global strategies consider global yield curves for potential diversification benefits and enhanced returns compared to domestic only strategy. 4. Market data (TRACE) is used to access and monitor issuer credit risk. 5. Patient trading allows flexibility (time and substitutes) to reduce transaction costs.)