"Thornburg’s first assets were invested in high quality, laddered fixed income portfolios, and the Limited Term U.S. Government Strategy is a part of that tradition. The portfolio seeks to provide U.S. government-guaranteed cash flows without outsized interest-rate exposure, along with relative safety and stability. Though certainly not the most adventurous of portfolios, the strategy has a 26-year track record and can fit well into a larger asset allocation. We manage it with that goal in mind."
— Jason Brady
Limited Term U.S. Government Strategy follows in the tradition of the first “core” bond portfolios managed by Thornburg. The portfolio is a 10-year ladder of U.S. government bonds (U.S. Treasuries and other bonds issued by U.S. government agencies). We don’t employ leverage or the use of derivatives in the management of the portfolio in an effort to try to eke out a few extra basis points of yield.
Credit quality, in a portfolio that’s comprised almost exclusively of U.S. government bonds, is quite high, with the full faith and credit of the federal government behind interest and principal payments.
Even— indeed especially, in some instances— in government-bond portfolios, managers often reach for yield through use of leverage or derivatives. While our prospectus permits us to purchase up to 20% non-government bonds (of any stripe), we don’t. It’s a simple, straightforward, clean approach designed to keep volatility and price movement in check.
As has always been the case, government bond portfolios are best viewed as part of an investor’s overall asset allocation, where relative safety of principal, reduced volatility, and low correlation with equities is desired.
Laddering involves building a portfolio of staggered maturities so that a portion will mature each year. Money from maturing bonds provides an organic source of cash flow, and is typically reinvested in longer-maturity bonds within the range of the ladder. In the case of Limited Term U.S. Government, the ladder ranges from zero to 10 years.