Fixed Income Rebalanced (FIR)

Strategy Overview

The Milwaukee Company’s Fixed Income Rotation (FIR) strategy is an all-bonds strategy designed to provide strategic exposure to fixed income sectors of the bond market.

 

Under normal market conditions, the strategy invests in a portfolio of bond sector ETFs that, in the aggregate, are representative of the total U.S. bond market.  When the interest rate risk appears to be elevated, the strategy will sell those sectors that are more vulnerable to rising rates, and reinvest the proceeds in cash equivalents, until conditions appear to have normalized.

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Characteristics

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  • Fund Universe

The FIR fund universe consists of nine Exchange-Traded Funds (ETFs) that represent various sectors of the U.S. bond market.

  • Rationale:

The rationales that underlie FIR are as follows.

  • Wider spreads imply that investors are being fairly compensated to hold longer maturities.

 

  • Narrower spreads imply that compensation for longer maturities is relatively unattractive.

 

  • The yield curve tends to mean revert through time, providing opportunities to tactically adjust a bond portfolio as expected risk and return fluctuate.

More specifically, FIR’s algorithm incorporates a Treasury yield-curve valuation model that assess interest rate risk.  The model analyzes the yield spread between the 2-year Treasury note (perhaps the most-sensitive maturity for pricing in rate expectations) and the 3-month Treasury bill (a proxy for cash).  When the spread is relatively narrow, the model recommends eliminating exposure to longer-maturity bonds.

The Milwaukee Company℠ is a tradename of Estate Counselors, LLC. The information provided herein is believed to be correct and has been obtained from sources that we consider reliable, but we do not guarantee that this information is accurate or complete.  All expressions of opinion reflect our judgment at the present time, but are subject to change. Nothing found herein is intended to be a substitute for personal investment advice. The investments discussed herein are risky in nature and involve a substantial risk of loss, and we do not in any way warrant or guarantee the results you will experience.