There are a number of areas that we believe offer the potential for diversifying away from term-structure risk and that offer attractive valuations and cash flow potential. Importantly, these sectors all share a common characteristic: They represent tiny fractions of the Agg, and the sources of risk they entail are far more diverse and much less contingent on declining interest rates to fuel returns.

A more comprehensive view of risks leads to a broader range of opportunities

A more comprehensive view of risks leads to a broader range of fixed income opportunities

« Rethinking the nature of fixed-income risk A comprehensive view of the markets »

Consider these risks before investing: International investing involves currency, economic, and political risks. Emerging-market securities carry illiquidity and volatility risks. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk and the risk that they may increase in value less when interest rates decline and decline in value more when interest rates rise. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for below-investment-grade bonds. Risks associated with derivatives include increased investment exposure (which may be considered leverage) and, in the case of over-the-counter instruments, the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. Unlike bonds, funds that invest in bonds have fees and expenses. Bond prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific issuer or industry. You can lose money by investing in the fund.