Fixed-Income Funds Guide: A Case Study on “Evergreen Family Foundation”
Introduction
When markets gyrate and headlines scream volatility, many investors look for an anchor. For the Evergreen Family Foundation (EFF)—a multigenerational charitable trust—2022’s equity drawdown was the wake-up call that triggered a full review of its 60/40 portfolio. This narrative walks through EFF’s realignment toward fixed-income funds, explains the key concepts they used, and offers a practical playbook any individual or institution can adapt.
What Exactly Is “Fixed Income”?
By definition, fixed income investments involve lending money to governments, municipalities, or corporations in exchange for predictable coupon payments and the return of principal at maturity. Because cash flows are contractual, the asset class is often called “sleep-well money.”
EFF’s investment committee (IC) wanted assets that would:
- Generate dependable cash yields to fund annual grants
- Buffer equity volatility
- Preserve purchasing power amid rising inflation
The Macro Backdrop: Why 2023 Looked Attractive
J.P.
Fixed-Income Building Blocks
The IC began by mapping the investable universe.
| Primary Category | Typical Maturities | Key Benefits | Principal Risks |
| U.S. Treasuries | 1 month – 30 years | Virtually no default risk; high liquidity | Inflation & interest-rate risk |
| Investment-Grade Corporates | 1 – 30 years | Higher yields than Treasuries | Credit-spread widening, downgrade risk |
| High-Yield (“Junk”) Bonds | 3 – 10 years | Elevated income potential | Elevated default risk |
| Municipal Bonds | 1 – 30 years | Tax-exempt income | Local-government credit & liquidity |
| Bond ETFs | Intraday liquidity | Diversification & low cost | Market-price volatility |
| Alternative FI (litigation finance, REIT debt, etc.) | 1 – 5 years | Return streams that are non-market-correlated | Illiquidity & complexity |
Case Study, Step 1: Assessing Goals & Constraints
EFF distributes 4% of its asset base annually. Grant-making calendars required $2 million in liquid income every July. To match that cash-flow need, the IC adopted a ladder of Treasury notes:
- 1-year, 2-year, 3-year, and 4-year maturities
- Equal par values so one rung matured each July
- Reinvest proceeds each year to maintain the ladder
Bond laddering helps investors manage risk and liquidity by staggering maturities, so not all capital is locked up at one yield.
Case Study, Step 2: Selecting Fund Vehicles
EFF debated buying individual bonds versus funds. The committee ultimately chose a mix:
- Ultra-Short Duration ETF (Treasury bills) —cash-like sleeve
- Core Aggregate Bond Index Fund —cheap beta exposure
- Active Core-Plus Fund for opportunistic spread capture
- Municipal Bond Fund for EFF’s taxable account
- Private Credit Interval Fund (2-year lockup) for incremental income
Vanguard research found that bond funds often deliver diversification benefits similar to ladders while “doing so with lower costs and greater efficiency.” That argument, plus daily liquidity, tipped the scales toward funds.
Risk Dashboard the IC Monitored
| Metric | Why It Matters | Sample Threshold |
| Average Duration | Interest-rate sensitivity | <6 years |
| 30-Day SEC Yield | Current income level | ≥4.5% |
| Credit Quality Mix | Default risk indicator | ≥70% IG |
| Expense Ratio | Drag on returns | ≤0.40% |
| Tracking Error | Active funds’ deviation vs. benchmark | <1.5% |
Waterloo Capital stresses that “credit quality, duration, yield, total return, and expense ratios” are critical when selecting the right fund.
Lessons From Implementation
Interest-Rate Volatility
Rising yields in early 2023 pushed bond prices down, but the high starting coupons provided a buffer. Merrill’s education desk reminds investors that bonds still offer fixed interest income until maturity, even when market prices fluctuate.
Inflation Protection
The committee added a Treasury Inflation-Protected Securities (TIPS) ETF after realizing that traditional fixed coupons can lag CPI. Kovitz notes that TIPS are effective when inflation erodes fixed-income purchasing power.
Diversification Outside Traditional Bonds
To hedge recession risk and hunt for higher yields, EFF allocated 5% to a litigation-finance note originated by Hays Mews Capital, targeting returns of up to 18% annually. Because these notes are illiquid and available only to qualified investors, the IC capped exposure to avoid concentration risk.
One-Year Report Card (July 2024)
| Sleeve | Beginning MV ($) | Average Yield | 12-M Return | Ending MV ($) |
| Treasury Ladder | 10,000,000 | 4.1% | 3.8% price + coupons | 10,380,000 |
| Core Bond Index | 8,000,000 | 4.4% | 5.2% | 8,416,000 |
| Active Core-Plus | 6,000,000 | 5.1% | 6.0% | 6,360,000 |
| Muni Fund | 4,000,000 | 3.2% (tax-free) | 4.1% | 4,164,000 |
| Private Credit | 2,000,000 | 10.5% | 10.2% | 2,204,000 |
| Total / Blended | 30,000,000 | 5.0% | 5.5% | 31,524,000 |
EFF met its $2 million distribution target while growing principal. The key takeaway: portfolio ballast works when combined thoughtfully.
Practical Checklist for Your Own Allocation
- Define cash-flow needs and time horizon
- Decide between individual bonds, ETFs, and mutual funds
- Check duration, credit quality, yield, and cost
- Stress-test against rate hikes and defaults
- Rebalance annually; harvest tax losses when available
Remember, fixed-income products are not risk-free. Even the safest Treasuries can lose real value if inflation outpaces yield, and corporate bonds face credit uncertainty. As eToro’s primer warns, investors must weigh interest rate, inflation, call, liquidity, and credit risks before committing capital.
Conclusion
For the Evergreen Family Foundation, reallocating into a diversified mix of fixed-income funds restored portfolio stability, generated reliable income, and reduced sleepless nights. Their journey underscores a timeless principle: in uncertain markets, predictable cash flows can be priceless. Whether you are a retiree building a ladder or an endowment seeking yield, a disciplined approach to fixed-income investing can help anchor long-term goals.
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