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Portfolio Managers John Kerschner, Nick Childs, and Jessica Shill discuss how adding floating rate collateralized loan obligations (CLOs) to traditional fixed rate bond portfolios may improve risk-adjusted returns.
The issue of diversification has roared back to the forefront of investor concerns in 2022, as equity and fixed income markets experienced unprecedented concurrent drawdowns. For many investors, fixed income is considered “the diversifier” to their equity holdings, but disappointingly, they have not seen much diversification benefit from bonds in 2022.
In response, some investors are looking to new asset classes to diversify their portfolios. Liquid alternatives, unlisted real estate, and cryptocurrencies have garnered more attention, and their inclusion in traditional stock-bond portfolios is on the rise. While we believe this form of inter-asset class diversification (diversification between asset classes) provides benefits when done well, we think investors should not overlook the importance of intra-asset class diversification (diversification within asset classes).