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Spotlight on Portfolio Optimization 

bondIT takes care of your fixed income portfolio optimization for you. We have created an intuitive and powerful investment management software platform which creates instant, compliant investment proposals for fixed income securities, manages existing bonds portfolios to return the best rebalancing reinvestment options, and comes with a powerful ‘Solve Anyway’ feature which returns investment opportunities and options even when constraints are considered infeasible. bondIT saves your business valuable time and resourcing costs by offering a fully customizable software environment designed to take care of fixed income portfolio management in a way never before imagined. 

Where previously it may have taken hours and teams of professionals to thoroughly analyse changing conditions within the corporate bonds market or municipal bonds opportunities, bondIT can complete your analysis for you using whatever fixed income analytics you choose, in matter of minutes. Asset management tools have typically been offline systems either created by or inherited by portfolio managers and advisors. These systems don’t typically integrate in real-time, causing time delays when seeking proposal analysis or other fixed income options for clients The result is wasted time and resourcing costs devoted to manual analysis tools which may not be customizable or offer the most efficient asset management strategy. BondIT changes that with a fully customizable asset management platform. Your business can choose to use the standard optimization features and analytics included in BondIT or you can choose to work closely with us to target bespoke solutions which are both business and client-focused. 

Create advanced laddering strategies designed to align with client investment objectives seamlessly and effortlessly. Custom-immunize pre-retirement and post-retirement liabilities, effectively protecting clients’ interest and fixed income assets to ensure those down payments for a new home and vacation properties, as well as college tuition funds, remain unaffected or continue to grow. For post-retirement clients seeking regular and sustainable income sources, shift BondIT’s analytics to match and return instant, compliant investment proposals and rate bonds tailored to your clients’ needs. Do all of this instantly with BondIT and not only meet the investment goals of your clients, but seek to exceed them. 

What is portfolio optimization? 

Fixed income securities are available in two types of bonds: municipal bonds and the corporate bonds markets. Selecting which corporate bonds to buy and when to buy them is the stock and trade of the portfolio manager and the financial advisor. In-depth analysis of market conditions and interest rate environments helps to influence how a fixed income asset portfolio is optimized for the highest return on investment for the investor. This might mean using fixed income ETFs, mutual bond funds or even purchasing individual bonds as well as spreading a client’s assets evenly across other money markets and asset profiles. Optimization is the management of a client’s complete asset profile, ensuring that wealth generation continues in line with the individual investor’s personal goals and idiosyncrasies such as gifts of money and bonds as well as other philanthropic requirements. 

Fixed income risk comes in a variety of forms; however, fixed income investments are generally considered more stable than the stock market. Bond allocation is a large part of portfolio optimization, helping to spread a client’s interest across both high yield and high risk fixed income instruments as well as lower risk, lower return fixed income trade. 

Government bonds, or municipal bonds, are considered amongst the most stable sources of income. They are typically lower risk as they’re usually backed by U.S. Government departments and government agencies such as the U.S. Treasury. Fixed income high yield bonds have a fixed income risk correlate to their projected return, just as government bonds have a return correlate to their risk. Typically, municipal bonds will be issued at a lower interest rate than other corporate bond investments. This is because the credit risk, or risk of default, is significantly lower. The result is lower interest payments (otherwise known as coupon payments) over the term of the bond. 

While the risk of default is significantly lower for these types of fixed income bonds, there are still risks associated with these investments which must be carefully managed and mitigated by the portfolio manager or advisor. For example, inflation risk can significantly lower the worth of a fixed income fund. Should a bond issuer issue fixed income options at an interest rate of 5% but over the term of the bond inflation rises by 8% then the loss on this bond is therefore 3% of the total return. The money made in interest payments is worth significantly less as the value of the U.S. dollar has decreased. 

Interest rate risk is also a threat to the projected return of a fixed income fund and portfolio optimization can help to offset the potential loss of a bond and its project income. Higher interest rates are better environments for investing in bonds. When the federal reserve sets higher interest rates, the borrowing rate for bond issuers is higher. An investor may purchase bonds at a higher rate of interest initially and then, throughout the term of the bond, the federal reserve may lower interest rates. When that happens, the bond issuer may call the bond early, returning the initial capital investment funds and then re-issue bonds at a lower interest rate. In this instance, the investor has lost the projected income at that original interest rate and must decide whether to purchase the new, lower rate bonds or seek to offset the loss of income elsewhere in either the bonds market or other financial markets. 

Finally, government bonds may originally be offered as tax-exempt income, but their tax-free status may change throughout the term of the bond. Changing governments or political influences may alter which bonds remain tax-free and the investor must decide whether to absorb the loss of income or whether to sell the bond on the secondary market and make up the short fall elsewhere. Selling a government bond that is no longer exempt from income tax will also likely sustain a loss so this must be considered also. 

Fixed income high yield bonds are offered at higher rates and potential income generation because they are riskier investments. Corporate bonds are bonds issued by corporate entities seeking an injection of cash flow into their business. They are essentially debt instruments which promise to pay the bondholder a fixed interest rate on their capital investment throughout the term of the bond plus the promise to return the original investment amount when the bond reaches its maturity date. Credit ratings will affect the interest rate for these types of bonds. Low credit ratings mean high-interest rates and a higher risk of default. If the bond issuer defaults on their financial obligations, this will mean not only the loss of the projected income but also, potentially, the loss of all or some of the original investment funds. 

bondIT takes all of these factors into account to develop a portfolio construction and portfolio optimization process in a fraction of the time it takes to complete offline analyses. Save valuable time and resourcing costs by choosing bondIT to undertake your proposal generation and analysis for you. For more information about how bondIT can benefit your business, contact us today. We can talk you through what bondIT offers as standard as well as we can work directly with you to develop tailored solutions for your business and investors.