Overview

Fixed income (or debt) investment is one of the two most important asset classes (in addition to equity). It plays key roles in reducing portfolio risk while enhancing income stream or even return.

ValidFi collects various strategies based on mutual funds and closed end funds. Quite interestingly, some technical trading strategies are effective for this asset class investment.

Here is the list of fixed income investment strategies

Tutorials

Major risks in the fixed income investment area include credit risk and interest rate risk. Investment grade bond and high yield bond investment deal with the credit risk while short, mid and long term duration bond investment deal with the interest rate (inflation) risk. Value investing and momentum driven investing styles are employed in this area also, as they are in the equity stock investment.

• General income investment: Ralph Norton's excellent introduction on fixed income investment.
• High yield investment: Gerald Appel's book has a chapter on high yield investment.
• Inflation/deflation risks over multiple asset classes: Harry Browne's permanent portfolio. (this should belong to asset allocation category, however, it has excellent description on inflation and deflation risks related to fixed income)

Categories of Fixed Income Investment Strategies

Fixed income investment is usually involved in bond investment. In the higher risk spectrum, the long dated (treasury, municipal and corporate) bonds and high yield (junk) bonds present opportunities. Also, when international bond investment is considered, the currency fluctuation could increase the risk dramatically. ValidFi collects several very useful and high Sharpe ratio strategies.

• High yield bond strategies:
  • High Yield Timing: usetiming reversal based on how much reversal from the peak or trough for a diversified high yield bond fund.
  • Carpenter observes that high yield bond exhibits a good momentum and proposed a strategy based on alpha of a high yield bond index.
• Dynamic fund strategies:
  • Sharpe or alpha based multi-sector bond fund selection.
  • FundX style momentum based multi-sector or high yield bond fund selection.
  • Closed end bond fund selection: there are many closed end funds in fixed income area. Due to the nature of the closed end funds trading activities, their risk and return are increased dramatically.