All too often the attention paid to fixed income allocations is trivialized or ignored. Simply establishing quality standards and building a laddered maturity will not protect against principal fluctuation, hedge against inflation or meet income needs. United Asset Strategies takes an active, rather than passive role in developing, implementing, monitoring and adjusting our clients’ fixed income portfolios. After an in-depth data session wherein we uncover client’s risk tolerances and financial goals, we develop a custom mix of fixed income solutions.
As market conditions warrant, United will actively trade bonds, basing our decisions on changes in interest rates, issuer credit quality and current tax laws. Being independent and having access to a variety of issues is very important to our tactical approach.
· Principal Protection: If rates are likely to decline, it is appropriate to extend the maturity of fixed income holdings and increase call protection. This reduces reinvestment risk of principal and positions the bonds for appreciation as rates trend down. If we think rates may increase, we reduce the average maturity in the portfolio by swapping into shorter maturity bonds. This may lower the yield but the portfolio’s value will not depreciate as much. During the economic downturn, we shift our bond portfolios to higher quality issues, as they retain their value better than lower quality bonds in this environment.
· Total Return: We anticipate where interest rates are headed and execute bond trades to benefit from these changes. When the economy is gaining strength, we may switch to lower quality bonds, which produce greater yields and are less vulnerable to an inability to repay principal during this period.
· Tax Selling: Bonds can be sold, if at a loss, to offset capital gains from stocks, real estate and other income. Due to availability of a myriad of bond issues, we can purchase a replacement that matches your parameters for maturity, credit quality and price and not be negatively affected by the 30 day Wash Rule.
United Asset Strategies, Inc provides its clients with Prime Broker Services, an important resource, which allows us to execute bond trades with a variety of brokers rather than being limited to the dealer associated with the custody of your account. United’s Prime Broker Services is effective in having a large variety of issues to choose form and reducing the hidden cost associated with buying and selling bonds. Our use of proven, successful strategies when actively trading bonds helps our clients increase their portfolio’s total return and help protect against the price fluctuations consistent with interest rate moves.
Investors might be surprised to find that the hidden costs linked with purchasing bonds can be significantly higher than trading stocks. Bonds are traded in an over-the-counter market where dealers trade with each other and keep an inventory of bonds. Reasonable markups are consideredfair compensation for this risk of holding an inventory. Each firm establishes its own markup, which varies depending upon a number of factors.Dealers are free to tack on excessive charges to a bond whose buyer is unaware of the accurate price and markup. Since United does not take possession of the bonds, we do not participate in “markups” and have the advantage of shopping around to other dealers to get the best execution. We simply go to another dealer if we are not satisfied with the price.