For several years word on the street was that interest rates would rise and bonds would fall in price. That has not happened and all the “bond Eeyore’s” have been wrong, including me. With interest rates as low as they now are, when will we see a turn? According to the FED, interest rates will remain low so long as unemployment remains high. That is the current correlation.
What is the outlook for bonds going forward if we apply a three-year Quantext Portfolio Planner analysis and examine the Delta Factor projections? Keep in mind the Delta Factor projections tend to be early in their call. And by early, it can be as much as six to fifteen months in advance of what is likely to happen. Platinum members to my site will see what a portfolio of bonds looks like and the Delta Factor projections going forward.
Bond and Income Portfolio: While this is not a complete list of bond and treasury ETFs, it is certainly a representative group. As one might expect, the projected return and risk factors are quite low. Look over the Historical Data and one sees why we take on a little more risk in order to increase the return. Over the last three years the S&P 500 bested bonds by approximately 250 basis points annually. There is no comparison when it comes to the Standard Deviation (risk) as it is many times lower for the bond and treasury portfolio.
Bond and Income Delta Factor: The Delta column compares the Historical and Future (QPP projections) values and not one ETF is projected to outperform its three-year historical record. The reference standard used to calculate the Delta Factor is AGG, a broad based bond ETF. While there are a number of Hold positions, there are also a large number of Sell positions. If I were to continue to hold one ETF in this list it would be TLT.
Followers of the Swensen Six portfolio will recall a significant percentage of the portfolio is allocated to TIP and TLT in an effort to hold down portfolio volatility. When I update the Swensen Six, readers will see this is still the case. Bonds such as HYG, while held in many of the ITA Portfolios, is highly correlated with all the equity ETFs.
Note: If readers have other bond ETFs they would like to see added to this list, send them along and I will check their records. We need a minimum of three-years of data for them to be included in this analysis.