Investment Strategies for Low-Yield Environment

2 days
Prague, NH Hotel Prague
  • The “New Normal” of Low Yields
  • Enhancing Yield through Active Management
  • Enhancing Yield through a Broader Fixed-Income Approach
  • Investing in Asset Classes with Income-Like returns
  • Investment Planning for a Low-Yield Environment
  • Enhancing Yield through Derivatives Strategies
  • Portfolio Optimization under Risk Budget Constraints
  • Performance Measurement and Attribution Analysis
A two-day course on how investors can reach for higher returns by thinking outside the low-yield box

The purpose of this seminar is to provide you with a comprehensive overview of methods and tools for investing in the post-crisis environment of extremely low yields.

We start with a review of the economic developments that have lead to historically low yields and we discuss factors that could indicate a change of this environment. We also explain and discuss the risks of remaining invested "passively" in investment grade fixed income and we explain how yield may be sought enhanced through more active approaches.

We then take a closer look at a number of strategies that take a broader approach to fixed income investing and that may add yield potential with only incremental risk. We also explain how the risk/return relationship can be improved through active, "alpha-seeking" management, or "satellite" investing around the core.

Further, we explain how investors can move out the risk-return spectrum to look at asset classes that produce "income-like" returns. These include money market funds, dividend-paying common stocks, preferred stocks, high yield bonds, leveraged loans, convertible bonds, REITs, MLPs and certain types of private equity and hedge fund investments. We carefully explain the mechanics and risks of these instruments, and we illustrate with lots of practical examples.

Finally, we explain and demonstrate how to implement the above investment strategies following a carefully designed investment process. We explain how risk and return objectives and constraints should be formulated to reflect the "New Investing Normal", and we demonstrate how to construct optimal portfolios that maximize total return under the constraint of a risk budget. We also explain and demonstrate how to calculate and decompose investment return with the purpose of identifying return sources and to verify that the chosen strategies have truly added value, and not just risk.

09.15 - 12.00 The “New Normal” of Low Yields

  • Fundamental Changes in Financial Markets in the Aftermath of the Crisis
    • From risk-free return to return-free risk
  • The “Hidden” Risks of Low-Yield Investing
  • Thinking Outside the Low-Yield Box: Overview of Strategies for Enhancing Yields

Enhancing Fixed Income Returns through Active Management

  • Investing for Total Return
  • Segmenting Cash Investments According to Specific Liquidity Needs
  • Investing under Four Broad Macroeconomic Scenarios
    • Sub-Trend Recovery
    • Recession
    • Above-Trend Growth
    • Renewed Crisis
  • Projected Asset Class Yields, Risks and Returns under the Different Scenarios
  • Implementing Enhanced Index Strategies
  • Trading the Yield Curve
  • Risk Warnings - What Could Go Wrong with the Proposed Strategies?
  • Case Study and Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Enhancing Yield through a Broader Fixed Income Investment Approach

  • Developing a “Core-Satellite” Approach to FI Investing
  • Seeking “Alpha” through Active/Dynamic Bond Investment Strategies
  • Core Total Return Strategies
  • Income Core Strategies
  • Global Core Strategies
  • Low Duration Strategies
  • Diversified Income Strategies
  • Emerging Local Bond Strategies
    • Actively managed exposure to emerging market currencies
    • Actively managed exposure to local-currency-denominated sovereign debt
  • Investing in High Yield Bonds
  • Investing in Leveraged Loans
  • Specialized Investment Strategies to Pick Up “Hedged” Returns
    • Barbells, credit barbells, dumbbells, butterflies
  • Risk Warnings - What Could Go Wrong with the Proposed Strategies?
  • Case Studies and Exercises

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Investing in other Asset Classes with Income-Like Returns

  • Income Stocks
  • Convertible Bonds
    • Standard convertibles
    • Mandatory convertibles
  • Structured Bonds and Deposits
    • Inverse floaters
    • Arrears reset floaters
    • Superfloaters
    • Reverse convertibles
    • Principal protected index-linked structures
    • Range floaters linked to currencies and other asset classes
  • Structured Credit Investments
    • Credit-Linked Notes
    • Collateralized Loan Obligations (“CLOs”)
  • Master Limited Partnerships
  • Fixed Income Absolute Return Funds (Hedge Funds)
  • Risk Warnings - What Could Go Wrong with the Proposed Strategies?
  • Case Studies and Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Investment Planning and Portfolio Management in Low-Yield Environment

  • Investment Planning for a Low-Yield Environment
    • Defining investor’s goals as realistic lifestyle objectives in a low-return world
    • Taking a “holistic” view of the client’s investing and financing situation
    • Creating a risk budget to reflect inflation risk and duration risk
    • Aligning the investor’s goals with the broad capital market scenarios
  • Optimizing the Portfolio Under Risk Budget Constraints
    • Classic MV optimization
    • A Bayesian approach to portfolio optimization
  • Using Low-Yielding Instruments as Defensive Tools and Diversifiers
  • Using Low-Yielding Instruments as Deleveraging Tools
  • Using Derivatives in Constructing Risk-Return-Enhanced Portfolios
    • Enhancing yield through currency hedging (quanto hedging)
    • Increasing expected minimum return by giving up upside (covered calls)
  • Performance Measurement and Attribution Analysis
  • Case Studies and Small Exercises

Summary, Evaluation and Termination of the Seminar

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