We asked several advisors which funds they consider for the rising interest rate scenario.
Louis P. Stanasolovich, CFP, Legend Financial Advisors Inc., Pittsburgh
o Franklin Adjustable US Government Securities (FAGZX)
o Eaton Vance Global Macro Absolute Return (EIGMX)
o Templeton Global Bond (TGBAX)
All the funds either invest in instruments that adjust their interest rates (Franklin Adjustable U.S. Government Securities and Eaton Vance Floating Rate) or they can short currencies, bonds, or avoid interest rate markets (Eaton Vance Global Macro Absolute Return and Templeton Global Bond).
Target allocations: It depends upon which portfolio we invest in. Generally, the allocation for each fund will range from 3.0% to 15.0% dependent upon how conservative (the more conservative, the more of an allocation) the portfolio is.
David Zuckerman, CFP, CIMA, Zuckerman Capital Management, LLC, Los Angeles
TIPS are one of the only ways that investors can hedge interest rate risk out of a fixed income portfolio. Certain bonds issued by financially responsible foreign governments (i.e., Norway, Sweden, and Australia) may also provide an indirect hedge against higher levels of inflation in the U.S.
The mutual fund we use for TIPS exposure is PIMCO Real Return Institutional (PRRIX), and depending on goals and risk tolerance I will position up to one-third of a client’s fixed income portfolio in the fund.
Templeton Global Bond Advisor (TGBAX) is the bond fund that we use to position clients in foreign government bonds. Depending on risk tolerance, I will typically position up to half of a client’s fixed income portfolio in this fund.
For conservative clients that are focused on minimizing interest rate risk, low duration bond funds play an important role and PIMCO Low Duration Institutional (PTLDX) is a core holding where we will position up to 40% of a client’s fixed income portfolio.
John F. McAvoy, CFP, Waterstone Retirement Services, Canton, Mass.