The Long View on Long Duration
Long duration investment strategies have become increasingly important for pension plan administrators seeking a tighter match between assets and liabilities. Implementation of effective long duration strategies gained greater urgency in recent years with the adoption of the federal Pension Protection Act, which sets minimum funding standards for corporate defined-benefit pension plans in the United States.
Long duration strategies
Capital Group has managed a government/credit-plus long duration strategy for more than a decade. We recently introduced a new long duration strategy focused on credit, partly to meet the needs of clients who require a tighter match between assets and liabilities. The existing long duration government/credit strategy is wider in scope, investing in corporate bonds and government securities for greater flexibility, but with a looser match to liabilities. Both strategies are offered in "plus" variations, expanding the universe of investments to include high-yield bonds.
The investment process
Our investment process incorporates top-down and bottom-up decisions. We manage sector allocation to corporate and government bonds as well as duration and yield curve positioning at the team level. Portfolio managers make individual decisions on industry allocation, credit quality distribution and issuer selection. We manage duration primarily through our corporate and Treasury investments and selectively use Treasury zeros, TIPS, interest rate swaps and futures based on our analysis of relative value and efficiency of execution.