Boost Your Bond Portfolio Returns With Alternative Fixed Income Sectors

When investors seek portfolio diversification, they typically turn their attention to the equity market, probing for an over concentration of risk in a particular geography or sector. However, diversification is just as vital in the bond market, where many investors primarily concentrate on “core bond” portfolios composed of government bonds, agency mortgage-backed securities, and investment-grade corporate bonds. Despite their popularity, these portfolios may lack sufficient diversification.

Disappointing returns of core fixed-income last year highlight the need for an alternative approach to gaining exposure to the asset class. The iShares Core U.S. Aggregate Bond ETF (AGG
AGG
) shed more than 13% in 2022, the worst total return in decades, surprising investors with additional losses on top of the pain they experienced in their equity portfolios.