As an income-oriented portfolio, the Stable High Yield portfolio is not immune to the factors that affect the bond market.

My portfolio has had a tough time mostly because of the the price declines in mortgage real estate investments trusts (mREITS). That said, the earlier performance of mREITs was the primary reason that the portfolio has outperformed the bond market since its inception in July 2011.

That’s notable for a couple of reasons: Stocks went on a unusual 32% tear during 2013, while bonds lost 2% (as measured by the Barclays U.S. Aggregate Bond Index).

In my opinion, given the unusual pattern of the past 30 months, a 5% total return for my portfolio since inception (as of 12/31/2013), vs. 14.8% for the Standard & Poor’s 500 index, isn’t bad at all. This argument is additionally persuasive given that the Barclays bond index is up only 3.3% over that time.

In the case of my portfolio, it has been feast then famine, as its mREIT holdings provided big returns in 2011 and for part of 2012, and since then have tanked.

But ours is a secular game. Fixed-income investing should not be the domain of traders. By its nature it is meant for long-term investing. An exception might arise when a decline in interest rates makes it beneficial to sell a bond investment for a higher price. That could have occurred during virtually any given span between 1982 and 2013, a protracted bull market for bonds.

But those days are effectively over. There is no room for rates to go materially lower. It matters not what income portfolios did over the recent past, whether they were managed by Bill Gross, Jeffrey Gundlach or yours truly.

None of us could stop the interest-rate tumult that drove down prices. All that matters now is how bond portfolios are managed from this point forward, because bond investing isn’t dead. It’s necessary even in today’s environment.

Thus, if one assumes that the future of interest rates is either sideways or up, the thinking here is to remove as much rate risk as possible from the portfolio. We are attempting this by limiting our durations, which keeps principal values reasonably steady. A rise in rates will most likely damage such values. We are thus investing in high-yielding securities that comport with that low duration constraint.

DISCLAIMER: The investments discussed are held in client accounts as of January 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. REITs are subject to credit and interest rate risks, as well as risks associated with small- and mid-cap investments. Past performance is no guarantee of future results.