At a time when economic conditions shape the fate of investments, the consensus serves as an indispensable compass for investors and analysts. Currently, this compass seems to be pointing toward a stabilization of interest rates by the Federal Reserve, suggesting that we have reached the peak of this rate-hiking cycle. This situation offers us an opportunity to take advantage of the rates available in the market before further changes occur.

Inflation, once a specter that threatened sustained economic growth with unexpected ferocity, is showing signs of slowing. This phenomenon suggests that duration risk—the possibility of capital losses in the event of a rate hike—now appears more limited. While economic shocks are a constant, current monetary policy appears to have the necessary strength to cushion interest rate fluctuations in the near future.

Despite this, credit risk still requires careful consideration. Projections of only moderate economic growth, coupled with palpable uncertainty regarding corporate earnings, call for a cautious approach. With risk-free interest rates reaching highs not seen in the last fifteen years, it is prudent to avoid exposure to companies with low credit ratings and opt for a diversified portfolio of investment-grade bonds and U.S. Treasury securities.

In the world of fixed income, it is clear that direct investment in corporate bonds requires constant monitoring and a significant investment to achieve adequate diversification. On the other hand, mutual funds solve the problem of diversification but add the complexity of constant cash flow, which can affect returns due to the reinvestment of maturing bonds.

Within this framework, fixed-maturity funds or ETFs emerge as a compelling option for investors seeking predictable and stable returns over time. These instruments mimic the performance of a bond portfolio with specific maturities, culminating in their liquidation upon reaching the maturity date, thereby eliminating the risk associated with reinvestment and ensuring a fixed return.

Fixed-maturity funds or ETFs offer numerous advantages. They provide access to a wide range of issuers and sectors through a single transaction, which minimizes costs and maximizes efficiency. Because they are listed on the stock exchange, they offer transparency and liquidity similar to that of individual bonds, making them easy to buy or sell. In addition, they provide greater flexibility, allowing investors to choose among different maturities and risk levels based on their financial needs and goals.

iShares iBonds are a prime example of this solution, representing the most cost-efficient option for achieving the goal of locking in rates. They offer the opportunity to invest in a diversified portfolio of U.S. investment-grade bonds with fixed maturities, while maintaining characteristics similar to direct bonds and providing the additional option of investing through UCITS vehicles, which can potentially enhance returns through tax benefits depending on the investor’s jurisdiction.

In short, in the current environment where rates appear to be stabilizing, fixed-maturity funds or ETFs are emerging as an invaluable tool for capitalizing on opportunities in the fixed-income market. They combine, on the one hand, the stability and yield of bonds, and on the other, the diversification and liquidity of mutual funds, thus emerging as a leading option for qualified investors seeking regular and predictable income.

Family Office Team