Navigating Uncertainty with Fixed Maturity Portfolios
Traditional fixed income benchmarks may sometime fall short of providing true bond-like charasterics, In this paper, we explore how Fixed Maturity Portfolios (FMPs) target this concern by offering a bond-like structure with the added benefits of an index and the product wrappers around them.
Key Research Topics
- In FMPs, reinvestment of cash flows—generated from coupons, maturing bonds, calls, and defaults—is crucial to achieve the indicative yield.
- Maintaining a static set of bonds until maturity can minimize turnover and simplify management but might not be feasible for various reasons.
- Callable securities introduce further reinvestment and prepayment risks that can affect realized returns.