Below are Strategic Income's neutral asset allocation benchmarks and the funds current allocation to those sectors
| Strategic Income Asset Allocation (as of 10/31/04) |
| Bond Sectors |
Neutral
Benchmark
Allocations |
Current
Allocations |
Over/
Underweight |
| High-Yield Bonds |
40% |
44% |
+4% |
| U.S. Treasury Bonds |
30% |
21% |
-9% |
| Foreign Developed Market Bonds |
15% |
15% |
0% |
| Emerging Market Bonds |
15% |
15% |
0% |
| Cash/Other |
0% |
5% |
+5% |
After struggling early in the year, the fund’s allocation to emerging markets debt is currently helping to drive returns. The fund has allocations in the debt of Mexico, Russia and Venezuela. These oil-exporting countries are benefiting from higher oil prices. As a result, they find themselves with a substantial and unexpected inflow of petro-dollars that is benefiting their economies immensely. (We still include Mexico in the emerging market category even though the debt of this country is investment-grade rated). Some countries are using their new-found profits to strengthen their balance sheets (treasury), spend on domestic needs or, in the case of a few, buy back some of their higher interest cost debt outstanding (think of it as refinancing of your high interest rate home mortgage). Either way, their bonds are becoming more attractive to investors and yields are moving down and prices up.
As we saw with U.S. high-yield bonds, once again Bill is taking a few bets off the table in order to lock in some of the recent and dramatic appreciation the bonds in this sector have recently enjoyed. Bill's allocation to this sector is back to its neutral weight of 15% down from 17% a short while ago.
