Long-Short Bond

Long-short bond mutual funds and ETFs typically seek generate absolute fixed-income returns... Long-short bond mutual funds and ETFs typically seek generate absolute fixed-income returns and offer diversification, regardless of the direction of interest rates. These funds tend to reduce interest rate risks by managing duration (i.e. the portfolio’s sensitivity to changes in interest rates). They also seek to provide downside risk protection to ensure the fund’s assets are not significantly impacted due to moves in the overall market. Usually, they have the ability to invest across a wide range of fixed-income products of varying credit quality. Typical investments include U.S. government and agency debt, foreign government debt, corporate bonds, mortgage-backed securities, asset-backed securities, preferred securities, fixed-rate loans, floating-rate loans, convertible debt, senior debt, subordinated debt, and other structured products. At the same time, these types of funds typically take short positions (i.e. a bet that the price of a security will fall) to either hedge or enhance returns and may do so via derivative products, including swaps (e.g. credit default swaps or interest rate swaps), options, and futures contracts. Long-short bond mutual funds and ETFs can be exposed to significant risks because of their derivative positions. The leverage inherent in some derivative products can lead to disproportionate losses (compared to a simple unleveraged product) as a result of small changes in the value of the underlying asset. As such, these funds are not appropriate for long-term, conservative-minded investors, who should instead look to invest in a traditional fixed-income ETF or mutual fund, which simply buys (i.e. takes long positions) in debt securities without involving the use of derivatives. Last Updated: 12/27/2024 View more View less

Long-short bond mutual funds and ETFs typically seek generate absolute fixed-income returns and offer diversification, regardless of the direction of interest rates. These funds tend to reduce interest rate risks by managing duration... Long-short bond mutual funds and ETFs typically seek generate absolute fixed-income returns and offer diversification, regardless of the direction of interest rates. These funds tend to reduce interest rate risks by managing duration (i.e. the portfolio’s sensitivity to changes in interest rates). They also seek to provide downside risk protection to ensure the fund’s assets are not significantly impacted due to moves in the overall market. Usually, they have the ability to invest across a wide range of fixed-income products of varying credit quality. Typical investments include U.S. government and agency debt, foreign government debt, corporate bonds, mortgage-backed securities, asset-backed securities, preferred securities, fixed-rate loans, floating-rate loans, convertible debt, senior debt, subordinated debt, and other structured products. At the same time, these types of funds typically take short positions (i.e. a bet that the price of a security will fall) to either hedge or enhance returns and may do so via derivative products, including swaps (e.g. credit default swaps or interest rate swaps), options, and futures contracts. Long-short bond mutual funds and ETFs can be exposed to significant risks because of their derivative positions. The leverage inherent in some derivative products can lead to disproportionate losses (compared to a simple unleveraged product) as a result of small changes in the value of the underlying asset. As such, these funds are not appropriate for long-term, conservative-minded investors, who should instead look to invest in a traditional fixed-income ETF or mutual fund, which simply buys (i.e. takes long positions) in debt securities without involving the use of derivatives. Last Updated: 12/27/2024 View more View less