"The Thornburg Low Duration Income Fund seeks income in the context of low interest rate exposure and high-quality fixed income. All purchases must be investment grade, and with a five-year ladder weighted towards the front end of the yield curve, duration risk is expected to be small. While many portfolios in this category maximize credit risk in order to generate significant yield, we believe there is a place for a sensible portfolio of thoroughly researched fixed income securities."
— Lon Erickson
With a duration normally hovering around 1.5 years, Low Duration Income Fund is designed to have low exposure to fluctuations in interest rates.
It provides investors with a home on the short end of the yield curve, whether they are there in anticipation of short rates rising, or simply to have a relatively stable home for a short time period.
Many portfolios and funds in this category attempt to make up for the relatively low yields attainable in the short end of the bond market by assuming additional credit risk.
While that can work in certain environments, it can backfire in others, and it’s simply not the goal of this portfolio to chase yield.
We assume a modest amount of credit risk commensurate with the fund’s goal of relative stability of principal.
Laddering is another means by which we mitigate some of the forms of risk inherent in bond investing. This portfolio can invest in maturities from one to five years.
Investing a relatively even amount in each year of the ladder gives us a predictable source of organic cash flows for reinvestment in every interest-rate environment, whether short rates are low, as they are now, or whether they are relatively high, as they were in 1999 and 2009.