Fixed Income 101 - HSBC Asset Management Hongkong (2024)

FAQs

What is fixed-income asset management? ›

Fixed-income portfolio management is an investment approach that focuses on the preservation of a specific capital. It relies on investments such as bonds, CDs and annuities. While fixed-income portfolios can help maintain capital, there are some things to keep in mind with this form of investment.

Key Takeaways. Fixed-Income securities provide investors with a stream of fixed periodic interest payments and the eventual return of principal at maturity. Bonds are the most common type of fixed-income security. Different bonds have different term lengths depending on how long the issuer wishes to borrow for.

Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products.

Equity securities are financial assets that represent shares of a corporation. Fixed income securities are debt instruments that provide returns in the form of periodic, or fixed, interest payments to the investor.

BlackRock remains the world's largest asset manager overall.

Fixed Asset Management Defined

It oversees financial accounting (value of the asset), preventive maintenance (upkeep costs) and theft. Asset management typically incorporates the following tasks: Overseeing and tracking fixed assets. Monitoring fixed assets in multiple locations.

Many people shift their portfolios toward a fixed-income approach as they near retirement, since they may need to rely on their investments for regular income.

Essentially, fixed-income investing means loaning money—whether it's to a bank, government entity, or corporation—and receiving interest in the interim. As long as things go according to plan, your principal investment is preserved, according to Scott Kyle, CEO and chief investment officer at Coastwise Capital Group.

Bonds, such as U.S. Treasuries and corporate or municipal bonds, are traditional types of fixed income investments. Investors may also consider mutual funds and ETFs that hold fixed income investments.

What are the disadvantages of fixed income securities? ›

Fixed-income securities typically provide lower returns than stocks and other types of investments, making it difficult to grow wealth over time. Additionally, fixed-income investments are subject to interest rate risk.

If you decide to sell a bond before its maturity, the price you receive could result in a loss or gain depending on the current interest rate environment. The longer a bond's maturity—or the longer the average duration for a bond fund—the greater the impact a change in interest rates can have on its price.

Equity markets offer higher expected returns than fixed-income markets, but they also carry higher risk. Equity market investors are typically more interested in capital appreciation and pursue more aggressive strategies than fixed-income market investors.

Fixed income markets vs equity markets

While equity markets have the potential of giving higher returns in the short run, the returns are not guaranteed and thus increases the risk. The fixed income markets, on the other hand, offer stable returns and thus lower risk, but the returns might also be modest.

Fixed-income securities typically have lower risks, which means they provide lower returns. They generally involve default risk, i.e., the risk that the issuer will not meet the cash flow obligations. The only fixed-income securities that involve virtually no default risk are government treasury securities.

Bonds typically offer higher returns, albeit with accompanying risks such as credit or interest rate risk, which vary depending on the specific bonds chosen. Fixed deposits guarantee fixed returns, but the interest earned is taxable based on your tax slab. This taxation aspect varies among banks.

Annuities vary in payment schedule and payment calculation methods, while bonds vary in maturity length and interest rates. Annuities have longer durations, but bonds can be reinvested as they mature, so both financial products can be used for the long-term.

Fixed annuities rely on an insurance company's access to long-term high-yielding assets to ensure a certain return. A bond fund, in contrast, can't ever promise positive returns. Investors will see gains and losses every day even if they plan to hold for the long term.