Tactical Income –
Liquidity & Interest Rate Risks
January 13, 2021
Since August 4, 2020, higher inflation risks have lifted bond yields—the U.S. Treasury 10-year T-note yield has climbed from 0.51% to 1.13%. Over the last 12 months, lower bond prices have hindered balanced portfolios at a time when stocks are extremely expensive and exposed to remarkably high liquidity risks that could exacerbate a run-of-the-mill equity correction into a severe and quick decline (Figure A, Appendix).
Dorsey Wright Asset Management’s Tactical Income Model (DWATI) potentially hedges losses within a traditional portfolio (TRAD64) with 60% held in the S&P 500 and 40% in the U.S Barclays Aggregate Bond Index (Domestic Bonds). DWATI bested TRAD64 and domestic bonds by 2.2% and 11.9% over the last 12 months (Figure 1), while besting bonds by 30.4% and lagging TRAD64 by -22% in the last five years (Figure 2).