Three Reasons to Consider T. Rowe Price Diversified Income Bond Strategy

Kenneth Orchard, CFA Portfolio Manager, Head of International Fixed Income 
Vincent Chung, CFA Portfolio Manager, Global Fixed Income

Key Insights

• The uncertain market environment highlights the importance of an approach that is flexible and can invest broadly across a variety of different fixed income sectors.
• Diversified Income Bond is a “go‑anywhere” strategy that aims to provide high yield‑like returns with investment‑grade levels of risk.
• Our approach seeks to diversify return sources and risks, integrating top‑down macro views with bottom‑up fixed income security research.

Today’s uncertain market environment speaks to the importance of maintaining a globally diversified fixed income allocation. The ability to invest across a broad range of sectors and tactically adjust allocations can help to generate a more stable return and lower volatility through diversification. We believe that our Diversified Income Bond Strategy, which is a flexible, “go‑anywhere” core bond strategy, is suited precisely to this environment. Specifically, it offers the following three potential benefits:

1. Attractive income potential

We aim to provide investors high yield‑like returns with investment‑grade levels of risk. To do so, we leverage the full breadth and depth of T. Rowe Price Associates, Inc.’s (TRPA’s), fixed income capabilities and integrate the best income ideas from our global research platform into a single high‑quality portfolio.

We have the flexibility to invest across the broad fixed income universe, spanning more than 15 major fixed income sectors, 80 countries, and 40 currencies, to help us identify the most attractive opportunities. We believe that opening up the global bond opportunity set in this way allows us to seek higher yields and better risk‑adjusted returns. More importantly, diversifying return and income sources from various higher‑yielding sectors also allows the strategy to take on different types of risks that may be unrelated or even negatively correlated. This helps to lower overall portfolio volatility, better positioning it to pursue consistent long‑term returns. 
 

"We aim to provide investors high yield‑like returns with investment‑grade levels of risk.

– Kenneth Orchard, CFA 
Portfolio Manager, Head of International Fixed Income 
 

Diversified Income Bond Strategy snapshot

(Fig. 1) Seeks to build an optimal global fixed income portfolio

Image

As of December 31, 2024. 
1 The majority of the currency exposure will be hedged back to the U.S. dollar. 
Source: T. Rowe Price. 
 

2. Truly global portfolio

One of the strategy’s major distinguishing features is its truly global nature. This is distinct from other fixed income solutions that may have heavier tilts toward specific sectors, such as U.S. core bonds or securitized credit. In contrast, we prefer not to focus on geographies or sectors to avoid concentrations in a single sector or interest rate cycle. Instead, we utilize the full global opportunity set, including government, corporate, and securitized debt, both investment‑grade and high yield issues, across developed and emerging markets. We are also able to invest in nonmainstream sectors, such as mortgage‑backed securities and convertible bonds.

We view access to such a broad fixed income investment universe as crucial because it gives the strategy more sectors, issuers, and interest rate exposures to choose from, enabling us to pursue geographically and sectorally diversified sources of total return and income. This, in turn, also means we are harvesting a variety of risk premiums.

3. Controlled risk profile

The overall level of credit risk we seek is to maintain an average portfolio credit rating of investment grade. Furthermore, our active management style and robust risk controls help us to minimize volatility through different market cycles. We can adjust risk positions, hedges, and liquidity and are able to take more defensive or opportunistic positions as market conditions evolve. It is this flexibility that helps the strategy achieve its value proposition—aiming to give investors a smoother ride through market volatility while still pursuing consistent returns and income. 

Against a backdrop of heightened political uncertainty, monetary policy dispersion, high fiscal deficits, and tariff concerns, bond markets are likely to experience increased dispersion and volatility this year. We believe this environment is conducive for our globally diversified bond strategy, which seeks higher income and returns through holistic portfolio construction and the tactical management of duration, credit sectors, currency, and security selection. 
 

"…our active management style and robust risk controls help us to minimize volatility through different market cycles.

– Vincent Chung, CFA 
Portfolio Manager, Global Fixed Income

Risks—The following risks are materially relevant to the strategy:

ABS and MBS—Asset‑backed securities (ABS) and mortgage‑backed securities (MBS) may be subject to greater liquidity, credit, default and interest rate risk compared to other bonds. They are often exposed to extension and prepayment risk. 
Contingent convertible bond—Contingent convertible bonds may be subject to additional risks linked to: capital structure inversion, trigger levels, coupon cancellations, call extensions, yield/valuation, conversions, write downs, industry concentration and liquidity, among others. 
Credit—Credit risk arises when an issuer’s financial health deteriorates and/or it fails to fulfill its financial obligations to the portfolio. 
Currency—Currency exchange rate movements could reduce investment gains or increase investment losses. 
Default—Default risk may occur if the issuers of certain bonds become unable or unwilling to make payments on their bonds. 
Derivative—Derivatives may be used to create leverage which could expose the portfolio to higher volatility and/or losses that are significantly greater than the cost of the derivative. 
Emerging markets—Emerging markets are less established than developed markets and therefore involve higher risks. 
Geographic concentration—Geographic concentration risk may result in performance being more strongly affected by any social, political, economic, environmental or market conditions affecting those countries or regions in which the portfolio’s assets are concentrated. 
Hedging—Hedging measures involve costs and may work imperfectly, may not be feasible at times, or may fail completely. 
High yield bond—High yield debt securities are generally subject to greater risk of issuer debt restructuring or default, higher liquidity risk and greater sensitivity to market conditions. 
Interest rate—Interest rate risk is the potential for losses in fixed‑income investments as a result of unexpected changes in interest rates. 
Liquidity—Liquidity risk may result in securities becoming hard to value or trade within a desired timeframe at a fair price. 
Prepayment and extension—Mortgage‑ and asset‑backed securities could increase the portfolio’s sensitivity to unexpected changes in interest rates. 
Real estate—Real estate and related investments can be hurt by any factor that makes an area or individual property less valuable. 
Sector concentration—Sector concentration risk may result in performance being more strongly affected by any business, industry, economic, financial or market conditions affecting a particular sector in which the portfolio’s assets are concentrated. 
Issuer concentration—Issuer concentration risk may result in performance being more strongly affected by any business, industry, economic, financial or market conditions affecting those issuers in which the portfolio’s assets are concentrated. 
Total return swap—Total return swap contracts may expose the portfolio to additional risks, including market, counterparty and operational risks as well as risks linked to the use of collateral arrangements.

General risks

Conflicts of interest—The investment manager’s obligations to a portfolio may potentially conflict with its obligations to other investment portfolios it manages. 
Counterparty—May materialize if an entity with which the portfolio does business becomes unwilling or unable to meet its obligations to the portfolio. 
Custody—In the event that the depositary and/or custodian becomes insolvent or otherwise fails, there may be a risk of loss or delay in return of certain portfolio’s assets. 
Cybersecurity—The portfolio may be subject to operational and information security risks resulting from breaches in cybersecurity of the digital information systems of the portfolio or its third‑party service providers. 
ESG—Environmental, social, and governance (ESG) integration as well as events may result in a material negative impact on the value of an investment and performance of the portfolio. 
Inflation—Inflation may erode the value of the portfolio and its investments in real terms. 
Investment—Investing in portfolio involves certain risks an investor would not face if investing in markets directly. 
Market liquidity—In extreme market conditions it may be difficult to sell the portfolio’s securities and it may not be possible to redeem shares at short notice. 
Sustainability—Portfolios that seek to promote environmental and/or social characteristics may not or only partially succeed in doing so. 
Operational—May cause losses as a result of incidents caused by people, systems, and/or processes.

Additional Disclosure 
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.

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