The strategy, which seeks to hedge interest rate exposure by blending several diversified fixed-income products into a single account, has become especially compelling because of the current spreads in the long corporate bond market, Russell said in a press release.
Last year, Russell began communicating with its clients on the opportunities offered in the current fixed income market, noting that nearly all pension funds are both short duration and short credit relative to their liabilities. Russell explained that over long periods, both of these short positions represent a positive risk and a negative expected return. By lengthening duration and increasing credit exposure, risk can be reduced while long-term expected return is increased.
“While some are relying on basic hedging strategies with swaps and Treasuries to address the interest rate concern, the approach Russell has taken is to match and customize appropriate amounts of bonds to the specific liability of the client.” said Lisa Schneider, Director, Client Service, in the press release.
More information is at www.russell.com/ldi .