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Active Immunization Combination
Definition
This is a portfolio construction technique that combines two sub-portfolios into one. The first sub-portfolio is immunized, meaning that the returns are assured. A zero-coupon treasury bond for example may be used for this part of the overall portfolio. The second sub-portfolio utilizes an active return strategy that seeks higher return and higher risk in order to increase performance above the immunized rate of return.
Using the term Active Immunization Combination :
Mr. Jones (and Me) wants a portfolio that will meet his retirement goals in ten years. His portfolio manager decides to buy a zero-coupon treasury bond that will yield a minimum level of return over the retirement planning horizon. The portfolio manager uses the remaining cash in Mr. Jones' portfolio to invest in a portfolio of emerging markets securities to try to increase overall returns. This is an example of the active immunization combination technique.
Pay Special Attention To :
Some practitioners might argue that it is too expensive (in the form or lost returns) to immunize your portfolio. However, it depends on the portfolio owner's preferences and goals.
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Related terms
Active Investment Approach , Active Management , Active Return
