Over the past decade, many investment-grade debt strategies have veered further out on the risk spectrum in search of income – incorporating sectors like high yield or emerging market debt. But this may come at the expense of the downside mitigation that investment-grade debt is typically expected to provide. As episodic volatility typically increases toward the latter stages of the business cycle, the equity-like characteristics of these added sectors could make portfolios vulnerable in a market downturn.
We strongly believe an investment-grade holding should help investors mitigate risk and serve as the ballast of an overall portfolio. As such, our focus is on investing to provide attractive income without sacrificing capital preservation.
Our Approach to Investment-Grade Debt
To provide that mix of portfolio ballast and attractive income, we apply three key strategies:
1. Focus on appropriate sectors
We invest in U.S. Government bonds, corporate bonds, mortgages and asset-backed securities.
2. Avoid higher risk sectors and don’t make material interest rate or yield curve bets
We avoid “deep high-yield” bonds B-rated or below and emerging market debt. We also don’t believe anyone can consistently predict short-term changes in interest rates. As a result, we don’t make material interest rate or yield curve bets.
3. Employ a rigorous risk-control framework
To manage risk, we set limits on how much risk our portfolios can assume across the various sectors of the investment-grade universe. We also employ stop-out to neutralize the potential impact of any portfolio, sector or individual security positions that trend away from our expected view of their performance.
- “Pursue Income and Stability with Investment-Grade Debt” offers more details about OppenheimerFunds’ investment philosophy and its suite of investment-grade funds.
- On the 10th anniversary of his stewardship of the firm’s investment grade team, OppenheimerFunds Chief Investment Officer and Portfolio Manager, Krishna Memani, talked about his experience taking over the portfolios in the midst of the Global Financial Crisis, and his approach to risk management.
- In a recent episode of our World Financial Podcast, Krishna and his co-manager, Peter Strzalkowski, discussed their investment philosophy and tenure overseeing the firm’s investment-grade strategies.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
Debt securities may be subject to interest rate risk, duration risk, credit risk, credit spread risk, extension risk, reinvestment risk, prepayment risk and event risk. Interest rate risk is the risk that rising interest rates or an expectation of rising interest rates in the near future will cause the values of a fund's investments to decline. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Extension risk is the risk that an increase in interest rates could cause prepayments on a debt security to occur at a slower rate than expected. Below-investment-grade (“high yield” or "junk") bonds are more at risk of default and are subject to liquidity risk.
Diversification does not guarantee profit or protect against loss.
The mention of specific companies or sectors does not constitute a recommendation by any particular fund or by OppenheimerFunds, Inc. Certain Oppenheimer funds may hold the securities of the companies mentioned. It should not be assumed that an investment in the securities identified was or will be profitable.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.