Hemispheres Investment Management
What is the Core-Plus Bonds Portfolio?
The Hemispheres Core-Plus Bonds Portfolio is a carefully structured bond investment strategy designed to offer both stability and the potential for superior returns. This strategy is built around two key components:
- Core Component of the portfolio consists of highly diversified securities like those found in the Bloomberg Aggregate Bond Index. The Bloomberg Aggregate, as of July 2024, was composed of 2,324 securities. The table below lists the typical range of index holdings:
| U.S Treasuries | 40 – 45% |
|---|---|
| Government Sponsored Entities (GSE) | 5 – 10% |
| Uniform Mortgage-Backed Securities | 25 – 30% |
| Corporates | 20 – 25% |
| Asset-Backed Securities (ABS) | 1.5 – 2% |
These proportions can fluctuate over time as the composition of bond issuances and market conditions change.
The core component of the portfolio provides a stable foundation of investment-grade bonds, ensuring a solid base of predictable income generation and risk management. As of July 2024, 72.58% of the Bloomberg Aggregate had an AA credit rating.
- The Plus Component of the portfolio represents strategic allocations of bonds that Hemispheres views as offering superior investment returns. While these bonds are
primarily investment-grade and below-investment grade corporate bonds 1 , from time to time we may include sovereign bonds, preferred securities, and/or convertible bonds. The flexibility of this component allows the portfolio to capitalize on attractive valuations, higher yield and emerging opportunities. The addition of lower rated bonds does not materially alter the aggregate investment grade credit rating of the portfolio.}
By blending these components, the Core-Plus Bonds Portfolio aims to deliver a balanced approach that combines the security of high credit quality bonds with the growth potential of strategically selected investments. This strategic mix allows the portfolio to not only generate consistent income but also to take advantage of market inefficiencies and undervalued opportunities.
Why Choose Core-Plus Bonds for Your Investment Portfolio?
Diversification: The combination of core bonds and strategically selected plus bonds provides a well-rounded portfolio that spreads risk across various sectors and markets, all while maintaining an aggregate investment grade credit rating for the portfolio. The correlation between investment grade bonds to the S&P 500 is only 0.05. A correlation of less than 0.7 indicates that adding bonds to an equity portfolio helps to protect your portfolio from market volatility and economic downturns, reducing risk for the overall portfolio. This becomes increasingly important in a bear market or as an individual nears retirement.
Potential for Higher Returns: The strategic allocation in the “Plus” component allows the portfolio to pursue superior returns by investing in discounted bonds that are poised for capital appreciation as credit quality improves and as the bond nears maturity. Under typical circumstances, at maturity an investor receives the full par value of the security. Until maturity, the investor receives above average interest payments.
Stability and Growth: While the core bonds offer stability and reliable income, the plus bonds add an income and growth element, making this strategy suitable for a wide range of investment goals.
Performance Overview: Core-Plus Bonds vs. Bloomberg Investment Grade Bonds
To demonstrate the effectiveness of the Core-Plus Bonds Portfolio, here’s a comparison of its performance against the Bloomberg Investment Grade Bonds from 1/31/2015 to 12/31/2023:
| Strategy | Annualized Composite Returns (Gross) (1/31/2015 to 12/31/2023) |
|---|---|
| Hemispheres Core-Plus Bonds | 2.68% |
| Bloomberg Investment Grade Bonds | 0.33% |
As shown, the Hemispheres Core-Plus Bonds Portfolio significantly outperformed the Bloomberg Investment Grade Bonds, reflecting the strategy’s ability to generate higher returns through its strategic allocations.
Risks and Considerations in Bond Investing
All forms of investment involve risk. While the Core-Plus Bonds Portfolio offers compelling opportunities, it is important to consider the associated risks:
- Market Volatility: Bond prices can fluctuate due to changes in interest rates, economic conditions, and market sentiment.
- Inflation Risk: Inflation erodes the real return on fixed income investments as the purchasing power of the interest payments declines.
- No FDIC Insurance: Bond investments are not insured by the FDIC, and therefore carry inherent risks.
Hemispheres Investment Management
Potential Loss due to Interest Risk: The strategy includes bonds that may experience significant value changes, and as such, there is the potential for a material loss of value. Bonds and interest rates move inversely. This means that as interest rates increase, bond prices decrease. As interest rates increase, the value of the bonds in your portfolio would decline. An actual loss would be realized if the bonds were sold prior to maturity when the full principal of the loan value is repaid to the investor. The reverse is also true, as interest rates decline, bond prices in your portfolio would appreciate.
Potential Loss due to Default Risk: In addition to potential loss due to interest rate movements, corporate bonds are subject to default or credit risk. This risk is the possibility that a company may fail to make timely interest or principal payments, leading to default. A payment default can result in costly debt restructurings or in a worst-case scenario, bankruptcy. As of June 2024, S&P Global anticipates of the total speculative grade debt outstanding defaults will be limited to approximately 4.5%.
How the Core-Plus Bonds Strategy Aligns with Your Financial Goals
Whether your financial goals are focused on stable income generation, capital preservation, or growth, the Core-Plus Bonds Portfolio can be tailored to meet your specific needs. The strategy’s combination of stability and growth potential makes it a versatile option for a broad range of investment objectives.
Take the Next Step with Hemispheres
Your investment strategy should be as unique as your financial goals. The Hemispheres Core-Plus Bonds Portfolio offers a robust, diversified approach to bond investing, designed to deliver steady income and potential for growth. Contact Hemispheres today to explore how this strategy can enhance your portfolio and align with your broader financial plan.
Elevate your financial future with Hemispheres—where strategy meets success.
Need any Help?
Connect with Our Team for Assistance
Michael Hart, CFA
CEO and Director of International Research
Michael Hart has over 30 years of capital market experience. From 2007 to 2013, he worked as a Managing Director at Tradewinds Global Investors, where he was a global equity and emerging market equity portfolio manager and a global securities analyst. Prior to Tradewinds, Michael founded and operated Hemisphere Asset Management from 2000 to 2007; the Firm managed global equity, fixed income, and balanced accounts for individuals and institutions. From 1989 to 2000, he helped manage the investment portfolios of the Farmers Insurance Group of Companies as a Senior Portfolio Manager.
Rebecca Holden, CFA
Director of Domestic Research
Rebecca Holden has over 30 years of capital market experience. From 2003 to 2010, Rebecca was Portfolio Manager and Principal at Archer Capital Management in Los Angeles, California, managing domestic equity portfolios for individual clients. Prior to working at Archer, Rebecca was an equity analyst employed by Lehman Brothers in New York City following electric and gas utilities as well as energy companies. Before relocating to NYC, Rebecca was employed as an Intermediate Portfolio Manager for the Farmers Insurance Group of Companies as one of four corporate portfolio managers.
Rebecca was employed with prominent west coast financial institutions prior to employment on the Farmers accounts. Rebecca held positions as a credit analyst, banker structuring both private and publicly held bond issuances and later manager of one of the largest groups at the bank. In addition to the professional designations held, Rebecca has an MBA from Brigham Young University with a double emphasis in Quantitative Analysis and Finance (Investments).
Why choose us
Simplify Insurance Coverage Today
Another notable company is State Farm, a mutual insurance company that provides auto, home, and life insurance, as well as banking and financial services.
Project Completed Last Years
Happy Customer Worldwide
Our Member
Expert Professionals
Michael James
Balm Bayrak
Lucas Alexander
