The potential for low returns from bonds — or losses if interest rates start ticking upward — has many investors searching for a suitable replacement for a portion of their fixed income allocation in a traditional 60/40 diversified portfolio. The challenge is to find investments with higher return potential, but that do not move the portfolio too far out on the risk spectrum.
Enter defensive equities. By taking a portion of a diversified portfolio’s fixed income allocation and investing it in stocks with defensive characteristics, investors may be able to improve their returns relative to the traditional 60/40 mix, while only slightly altering the portfolio’s risk profile.
Reaves’ own brand of defensive equities — essential service infrastructure stocks – have not only provided defensive characteristics, but also demonstrated a history of outperforming bonds in rising rate environments — the key risk facing bonds today.
The tables below put that performance in perspective, showing the returns of the Bloomberg Barclays U.S. Aggregate Bond Index1 and our Long Term Value Strategy2 in each of the rising rate environments that have occurred since the strategy’s inception.
For those concerned about how rising rates will affect their bond portfolios, and why essential service infrastructure may be a viable replacement for part of the fixed income allocation, we encourage you to read our full paper, Rethinking 60/40: The Case for Defensive Equities.