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.

Tracking error constrained LDI mandates
Setting tracking error targets and well-defined investment guidelines in LDI mandates can help plan sponsors strike a good balance between risk controls and expected excess return.
P&I Special LDI Supplement
Capital Group's LDI investment specialist, Luke Farrell, was interviewed for the articles and shares Capital's perspective on the low rates challenge and LDI glide path management.

The Risks of Delaying Long Duration

Implementing a long duration strategy now may avoid potential future corporate bond scarcity. (Jun 2013)

Q&A – Fixed-income portfolio manager David Lee

In this recent interview, portfolio manager David Lee discusses his approach to managing long duration portfolios, as well as his overall outlook for the U.S. economy and the corporate bond market. (Oct 2012)

New pension rules shouldn’t derail long duration strategies

This recent Viewpoint article delves into the complex issues surrounding recent amendments to the Pension Protection Act, including a provision that changes the methodology for calculating discount liability rates. (Sep 2012)

Can you time a long duration strategy?

This To The Point article addresses one of the most often used reasons for delaying implementation of a long duration strategy. (Jun 2011)

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus, summary prospectus or the funds' Characteristics statement, which can be obtained from a financial professional, or your relationship manager, and should be read carefully before investing. Additional composite information is available for your reference.