Hi, I'm Crit Thomas. I'm here with Art DeGaetano, who is the portfolio manager on the Touchstone Flexible Income Fund. And Art, it's been about a month since we last spoke. Markets have been continuing to move around quite a bit. Curious as to what you've been doing in terms with the portfolio, and how you're positioned looking forward.
Sure. You know, we had a strong ending towards the year in the portfolio, and I know about three months ago, we talked about our positioning favoring spread tightening, and we saw that across preferreds, corporate credit, and municipals as well. If you were to look at the markets today, they're not that excitingly -- you know, exciting from a price standpoint, so really our focus for the next three, four months, we think is more on just relative value. So, running a significant coupon, but making sure that we're also in the best securities from a bottoms-up standpoint. So, there's really relative value on three fronts. There's the asset class level, so in our opinion, preferreds and some structured products look much more attractive with more upside less downside than, let's say, where high yields and investment-grade are priced. And if you were to look at preferreds at about a 4.25 yields, that's exactly where the High Yield Index is, and the High Yield Index has CCCs, so a lot more downside. And if you were to look at some structured products in the three to four percent range, very high quality, high rated, your average investment-grade bond is 1.8 percent in yield. So, from a [PH] rel val standpoint, there's certain asset classes we're favoring. From an individual securities selection, and relative value there, same things. We're favoring more floating rate in nature, just as interest rates move higher, we like that defensive nature of floating-rate products, whether it's perferreds, corporate bonds, even some loan funds, things of that nature. And then really last one is portfolio rel val. So, currently, our portfolio is about a 4.30 yield. Its average rating BBB+, and it's about a 3.5 duration, so if you were to compare the High Yield Index at a 4.20 yield, with CCCs, as I mentioned, we're a much better quality portfolio. If you were to look at most investment-grade bond managers, they're running in between a 5 and a 7.5-year duration; we're a 3.5 duration, and even the agg is a 6.3. So, we're running a high-quality portfolio, fairly moderate duration, and yet we're getting north of a four percent yield. So, from a relative value standpoint, the portfolio's attractive, as well, in the aggregate. So, that's what we're really focused on here. We're definitely staying highly liquid, and if there are any sort of backups or turns ahead, we want to make sure that we're opportunistic with those.
Great. Well, it was great to catch up with you, Art. Appreciate your insights.
Yes. Thank you.
As of December 31, 2020, BANK OF AMERICA CORP 6.00%, 11/16/2169 made up 0.38%, BANK OF AMERICA CORP 6.00%, 01/25/2169, made up 0.71%, BANK OF AMERICA CORP 6.20%, 10/29/2169, made up 0.18%, JPMORGAN CHASE & CO 6.15%, 12/01/2169, made up 0.06%, JPMORGAN CHASE & CO 6.10%, 12/01/2169, made up 0.02%, WELLS FARGO & CO 4.75%, 12/15/2169, made up 0.24%, WELLS FARGO & CO 5.70%, 12/15/2169, made up 0.20%, and WELLS FARGO INCOME OPPORTUNITIES FUND made up 0.26% of the Flexible Income Fund. Current and future portfolio holdings are subject to change.
The Touchstone Flexible Income Fund invests in fixed-income securities which can lose their value as interest rates rise and are subject to credit risk which is the risk of deterioration in the financial condition of an issuer and/or general economic conditions that can cause the issuer to not make timely payments of principal and interest also causing the securities to decline in value and an investor can lose principal. When interest rates rise, the price of debt securities generally falls. Longer term securities are generally more volatile. The Fund invests in preferred stocks which are relegated below bonds for payment should the issuer be liquidated. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing their price to decline. The Fund invests in non-investment grade debt securities which are considered speculative with respect to the issuers’ ability to make timely payments of interest and principal, may lack liquidity and has had more frequent and larger price changes than other debt securities. The Fund invests in asset-backed securities which are subject to the risks of prepayment, defaults, changing interest rates and at times, the financial condition of the issuer. The Fund invests in corporate loans which are considered speculative with respect to the issuers’ ability to make timely payments of interest and principal, may lack liquidity and have more frequent and larger price changes than other debt securities. There is a high risk that the Fund could suffer losses from investments in non-investment grade debt securities caused by the default of an issuer.
The information and statements provided here are believed to be true and accurate. There can be no assurance however that the beliefs expressed herein will be consistent with future market conditions and investor behaviors.
This commentary is for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation to buy, sell or hold any security. Investing in an index is not possible. Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results.
Not FDIC Insured | No Bank Guarantee | May Lose Value