Because bonds behave independently from equities, adding fixed income investments to a portfolio can improve its overall diversification. Fixed income securities expand the opportunity of investors to participate in the performance of capital markets and provide a more reliable source of income than other asset classes.Relative performance in fixed income is largely driven by two dimensions: bond maturity and credit quality. Bonds that mature farther in the future are subject to the risk of unexpected changes in interest rates. Bonds with lower credit quality are subject to the risk of default. Extending bond maturities and reducing credit quality increases potential returns.
Since it is impossible to predict what will happen with interest rates in the future, we diversify broadly and use a "variable maturity" approach in most of our portfolios. This approach, which was developed by Professor Eugene Fama, uses the current yield curve to determine optimal maturities and holding periods. To maximize expected returns, we choose shorter maturities in flat or inverted yield curve environments and longer maturities in upwardly sloped curves. Maturities are shifted in response to changes in the current yield curve.
Dimensional follows several different strategies in its fixed income portfolios, each designed to meet specific investor goals.
Since it is impossible to predict what will happen with interest rates in the future, we diversify broadly and use a "variable maturity" approach in most of our portfolios. This approach, which was developed by Professor Eugene Fama, uses the current yield curve to determine optimal maturities and holding periods. To maximize expected returns, we choose shorter maturities in flat or inverted yield curve environments and longer maturities in upwardly sloped curves. Maturities are shifted in response to changes in the current yield curve.
Dimensional follows several different strategies in its fixed income portfolios, each designed to meet specific investor goals.
Two constant maturity strategies, the Intermediate Government Fixed Income Portfolio and theInflation-Protected Securities Portfolio, seek to target the maturity of a specific portion of the bond market.
For investors seeking to keep their bond portfolio short and high in quality, the Two-Year Global Fixed Income Portfolio and Five-Year Global Fixed Income Portfolio target highly rated debt issuers. For those willing to take on additional volatility in pursuit of higher expected returns, the Short-Term Extended Quality Portfolio includes issuers whose credit quality is in the lower portion of the investment grade range.
Expected returns across hedged bonds differ because the shape of each yield curve is different. Portfolio maturities and country weightings follow a variable approach based on the expected return matrix generated for each eligible country and can be tilted toward countries with higher expected returns.
For fixed income investors seeking the higher return potential presented by unhedged foreign bonds, Dimensional offers the Selectively Hedged Global Fixed Income Portfolio. Depending on an investor's risk tolerance and asset allocation, introducing additional currency exposure may do little to alter the volatility of the overall portfolio.
Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (512) 306-7400; on the Internet at www.dimensional.com; or, by mail, DFA Securities LLC, c/o Dimensional Fund Advisors, Palisades West, 6300 Bee Cave Road, Building One, Austin, TX 78746.
Mutual funds distributed by DFA Securities LLC.
Mutual funds distributed by DFA Securities LLC.
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