Extremely low interest rates have led some investors to consider a reduction in fixed income allocations in response to low prospective returns.  Within fixed income, other investors are reaching for yield in higher risk segments of the fixed income market.  A misguided focus on static return targets may be behind such reallocation decisions, leading some to over-allocate to riskier assets.  The presentation will evaluate the strategic allocation decision in total and as it relates to fixed income from three perspectives.  First, current risk premium estimates will be evaluated to better understand the expected compensation for taking additional portfolio risk.  Second, diversification benefits of fixed income will be discussed from a historical and forward looking perspective.  Finally, strategic allocation within an asset-liability framework will be presented in relation to recent market returns.  While individual portfolio circumstances differ, the analysis will suggest that lowering strategic fixed income allocations in response to lower yields is not optimal.  Tactical viewpoints based on quantitative analysis will also be presented.  The analysis will point to a tactical underweight to duration but also a conservative approach to risk in both equities and fixed income spreads in general. 

Speaker: Kevin J. Stoll, CFA

Kevin J. Stoll, CFA®, is a Managing Director and Head of Quantitative Research at Sterling Capital Management. Kevin first worked at Sterling from 2004 to 2007 and rejoined the firm in 2013. He leads Sterling’s asset allocation process and is responsible for developing and applying quantitative analytics used in the investment and risk management process. Kevin has published papers on house price dynamics and corporate bond risk and won the 2014 Peter L. Bernstein Award, given annually for the best paper published across all the Institutional Investor Journals. Kevin has investment experience since 1998. Prior to joining Sterling, he worked at Smith Breeden Associates where he was director of quantitative research and analytics. Kevin also has prior investment experience as an analyst at Jones Lang LaSalle. Kevin received his B.A. in Economics and Mathematical Methods in the Social Sciences from Northwestern University and his M.B.A. from Duke University’s Fuqua School of Business. He holds the Chartered Financial Analyst® designation.