United Asset Strategies takes an active role in developing, implementing, monitoring and trading our clients’ fixed income portfolios. Simply establishing quality standards and building a laddered maturity will not protect against principal fluctuation, hedge against inflation, meet income needs and compliment equity positions. After an in-depth data session wherein we determine the clients’ risk tolerances and financial goals, we implement tailored solutions with a mix of fixed income securities. As market conditions warrant, United will actively trade bonds, basing our decisions on changes in interest rates, issuer credit quality, current tax laws and pricing inefficiencies. Being independent, having access to a variety of issues, and having multiple sources for trading execution is very important to our tactical approach.
- Interest Rate Awareness: 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 downward. If we think rates may increase, we purchase less interest rate sensitive securities, shorter maturities and bonds that perform well in rising interest rate environment. If we suspect economic conditions may deteoriate, we may shift our bond portfolios to higher quality issues, as they retain their value better than lower quality bonds in this environment.
- Total Return: The bond market is an inefficient market. We assess after tax returns to determine a proper mix of taxable and tax-free secuties within client portfolios. We will adjust the portfolios as economic events dictate.
- Tax Selling: Bonds can be sold, if at a loss, to offset capital gains from stocks, real estate and other income. Due to an 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 provides its clients with Prime Broker Services, an important resource which allows us to execute bond trades with multiple bond trading desks rather than being limited to the specific dealer associated with the custody of each client's account. The Prime Broker Service is effective in offering multiple sources to work with 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 portfolios' total return and helps 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 considered fair 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 hidden 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. United bids on bonds to attract the best offers.