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What is the purpose of the Fixed Income SMA strategy and why did the Fool Wealth team decide to include it as one of its seven signature SMA strategies?


At Motley Fool Wealth Management, we thought it was critical to include a fixed income strategy so that we could offer blended portfolios that met the needs of the widest range of clients.

Fixed Income is not something that clients feel really excited about when they see that part of our recommendation. What's surprising is the way it really improves portfolios. It will allow us to take more risk in an area like Supernova, because we've included some fixed income. So it really allows us to go after the strategies that we feel have the highest-expected returns in the future.

What is the Fixed Income strategy — and how is it different than the other six signature strategies Fool Wealth offers?


The Fixed Income portfolio is a complement to the equity portfolios that we have, and I'm very cognizant of how those portfolios are managed and what their mandates are. Within the context of a larger portfolio for an investor, you want to have diversification. This is something that I covered, as everybody does, when you get to CFA and really it's an analysis of the risk that you want to take on in your whole portfolio. Bringing that into the fixed income space — this is specifically designed with my knowledge of what the equity strategies of all of the other portfolios are.


The Fixed Income strategy is different from the other strategies because it's basically a bond portfolio. We're building a corporate bond ladder for you using ETFs, so there will be no stocks in that portion of the portfolio. We consider this the best derisker of the portfolio so that we're able to tamp down risk levels to a level of volatility that you're comfortable with.


The approach is a very conservative approach to fixed income which, itself, is a more conservative part of the portfolio than equity. So it's using ETFs — a single-year, laddered ETF strategy — and as these ETFs mature, we roll the coupons and the money into another year of the portfolio. So it's almost entirely in very high-quality corporates and also there's a small 10% or less exposure to high yield.

Who is the Fixed Income strategy right for?


The Fixed Income strategy is right for most investors — however, most investors don't think it's right for them, which is really funny to me, sometimes. During rising markets, no one wants it and during falling markets, people call in and say, "Hey. I want more fixed income."

It's very critical that you get the right balance of fixed income early in the process, so think critically about that when you see our recommendation. We're building a portfolio that we believe you're going to be able to stick through during up markets or down markets. So fixed income is right for investors who have a very long time horizon and are willing to wait out the trades, where fixed income might feel like a drag, because it will be a huge benefit during periods when equities are the drag.


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