For Fixed Income in 2021, a Good Defense is Still the Best Offense
Tom and Nolan break down some of the challenges facing fixed
income investors today — including the combination of low interest rates and
tight credit spreads that have resulted in record-low yields across the fixed
income marketplace. For example, the starting yield to worst (lowest possible
yield without defaulting) for the U.S. investment grade corporate index entered
2021 at a record-low level.
With this challenging environment as a backdrop, Tom and
Nolan share insights into where they're finding opportunities, today's portfolio
positioning, and more.
The opinions expressed are those of Weitz Investment
Management and are not meant as investment advice or to predict or project the
future performance of any investment product. The opinions are current through
the date of publication, are subject to change at any time based on market and
other current conditions, and no forecasts can be guaranteed. This commentary
is being provided as a general source of information and is not intended as a
recommendation to purchase, sell, or hold any specific security or to engage in
any investment strategy. Investment decisions should always be made based on an
investor's specific objectives, financial needs, risk tolerance and time
Past performance is not a guarantee of future results.
Holdings are subject to change and may not be
representative of a Fund's current or future investments.
Chart: Path of long-term
Treasury rate over last 40+ years. Source:
Bloomberg as of 02/04/21.
Chart: U.S. Investment-Grade Starting Yield to Worst vs.
Year-End Total Return. Source: CreditSights, ICE BofA Indices. This data
represents the effective start-of-year (Jan. 1) yield to worst of the ICE BofA
US Corporate Index which tracks the performance of U.S. dollar denominated
investment-grade rated corporate debt publicly issued in the U.S. domestic
Yield to Worst refers to the lowest potential yield (most
conservative yield) that can be received on a bond without the issuer actually
defaulting. YTW is calculated by using worst-case scenario provisions,
including prepayments, calls and sinking funds. Furthermore, YTW is a forward-looking
estimate that ignores capital gains.
Interest rate risk and duration: The shorter a fund's
duration, the less sensitive it will be to shifts in interest rates. As of
12/31/20: Weitz Core Plus Income Fund had an average effective duration of 4.2
years compared to its benchmark of 6.1 years, and Weitz Short Duration Income
Fund had an average effective duration of 1.1 year compared to its benchmark at
Consider these risks before investing: All
investments involve risks, including possible loss of principal. Market risk
includes political, regulatory, economic, social and health risks (including
the risks presented by the spread of infectious diseases). Changing interest
rates may have sudden and unpredictable effects in the markets and on the
Fund's investments. The Fund may purchase lower-rated and unrated fixed-income
securities, which involve an increased possibility that the issuers of these
may not be able to make payments of interest and principal. See the Fund's
prospectus for a further discussion of risks.