Seeking Alpha

Buffett takes bond holdings to lowest in over a decade

  • Typically making up 20-25% of Berkshire Hathaway's (BRK.A, BRK.B) insurance units' investment holdings ($186.8B AUM), fixed-income assets dropped to just 14% as of the end of the year. Stocks account for $114.8B of the holdings. Cash of $48.2B is up from $47B a year ago and $30.6B at the end of 2009, and of the fixed-income the units do hold, there's a decided tilt away from duration.
  • Investment income in the insurance units was $3.7B in 2013, but this could drop as nice-yielding deals with Mars, Inc, Swiss Re, Goldman, and GE wound down and Buffett has only been able to replace a portion of that money with equally lucrative plays (i.e., Heinz). “Investment opportunities currently available will likely generate considerably lower yields ... We continue to hold significant cash and cash equivalents earning very low yields.”
  • Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, ISTB, GBF, DI, LDUR, MINC, FWDB, GIY, AGND, AGZD
Comments (19)
  • Michael Bryant
    , contributor
    Comments (5436) | Send Message
     
    1) Bad news for bonds. Buffett sees bonds falling.
    2) Buffett looks like he plans to make about $18B in purchases.
    6 Mar, 03:39 PM Reply Like
  • kimboslice
    , contributor
    Comments (1475) | Send Message
     
    Buffet is right. Why buy debt if you are not compensated for it, or if the defaults are too dangerous for your returns?

     

    Buffet said that his wife's portfolio if he dies will be 90% Vanguard Index Fund and 10% bonds. The bonds will be the cushion to use if there are very bad returns for the stock market for a while.

     

    90:10 ratio of stocks:bonds seems about right to me too. For my opinion they threw me off Bogleheads blog.
    6 Mar, 03:59 PM Reply Like
  • chopchop0
    , contributor
    Comments (3240) | Send Message
     
    Anyone under the age of 45 (like myself).... the ratio should be 80:20 Stocks:Cash, NO BONDS
    6 Mar, 09:22 PM Reply Like
  • therealevan
    , contributor
    Comments (146) | Send Message
     
    Should be according to who... you?
    7 Mar, 01:21 AM Reply Like
  • chopchop0
    , contributor
    Comments (3240) | Send Message
     
    "Should be according to who... you?

     

    Duh.... this is a highly subjective answer and obviously depends on your age and risk tolerance.
    7 Mar, 08:44 AM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    The reason deals have been sparse the last couple years is because the money supply is so high. This lowers the cost of capital and allows borrowers to pick from a wide array of options. The pricing power is in the hands of the borrower, not the lender. This is why Buffet says, "investment opportunities currently available will likely generate considerably lower yields."
    6 Mar, 04:50 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8335) | Send Message
     
    This is a ferocious bond bull market.

     

    When Yellen started a tiny taper and bond yields came DOWN I knew that this was a generational event that may last the rest of the decade.
    6 Mar, 05:27 PM Reply Like
  • Kospi
    , contributor
    Comments (124) | Send Message
     
    Trying to squeeze the last little bit of gains out of bonds at this level is like picking up nickels in front of a bulldozer. Bond traders have leveraged up the puny yields thinking they can react before the Fed raises rates. Good luck on that. A generation ago, bonds were called "certificates of confiscation" because EVERYBODY who owned them lost money. The risk/reward from this level is ridiculous and anyone who plays here deserves what they get.
    7 Mar, 06:49 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8335) | Send Message
     
    Kospi,

     

    I used to feel the same way.
    12 Mar, 06:32 PM Reply Like
  • Econ Student
    , contributor
    Comments (202) | Send Message
     
    Bonds are going lower in price over the next few years.
    6 Mar, 06:52 PM Reply Like
  • Deidre
    , contributor
    Comments (8) | Send Message
     
    Bond yields are going up and soon. Buffett is a smart man. Just look at the Fed minutes of December, redolent of Dec 12...a few participants chomping at the bit to start raising rates soon...
    6 Mar, 07:27 PM Reply Like
  • chapinlara
    , contributor
    Comments (5) | Send Message
     
    The 90:10 stocks: short term bonds ratio looks just right to me as well. Retirees that follow the classical high 50% bond ratio investment will face a tough time if they are healthy and live longer than average. I understand there are many variables, but as a general rule of thumb in the current environment Buffett makes a valid point.
    7 Mar, 01:21 AM Reply Like
  • Kospi
    , contributor
    Comments (124) | Send Message
     
    Are you saying bonds are currently "Deep Value"? I'll have some of what you are smoking.
    7 Mar, 06:50 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8335) | Send Message
     
    Bonds haven't been a deep value for 30 years.

     

    I am saying that the global obsession for yield coupled with governments world-wide printing currency like there is no tomorrow will not be ending anytime soon.

     

    Yields are stuck near historic lows and large, LARGE forces aren't allowing them to break through the low ceiling.

     

    Things will change once global growth accelerates quickly but that too ain't happening anytime soon.
    12 Mar, 06:35 PM Reply Like
  • gray67
    , contributor
    Comments (42) | Send Message
     
    The commonly used stock to bond ratios are useless and misleading. If your 10% in bonds represents a billion USD then that just might get you thru a year or two with a down stock market. If ithat 10% won't make a house payment then you may want to pay off your credit cards!
    7 Mar, 12:45 PM Reply Like
  • chapinlara
    , contributor
    Comments (5) | Send Message
     
    No. I am with you Kospi: "The risk/reward from this level is ridiculous and anyone who plays here deserves what they get."
    7 Mar, 12:59 PM Reply Like
  • Econ Student
    , contributor
    Comments (202) | Send Message
     
    Gray I agree you should have 5k or so in cash.
    8 Mar, 12:37 AM Reply Like
  • RyanMKnoll
    , contributor
    Comments (21) | Send Message
     
    What about bond ETFs like HYHG that are high yield bonds with a hedge in the form of shorted treasuries? Wouldn't that enable income with minimal interest rate hike risk?
    9 Mar, 01:00 PM Reply Like
  • The_Hammer
    , contributor
    Comments (3861) | Send Message
     
    Treasuries are the biggest baddest bubble in history. The payer of last resort is nearly tapped out. It goes bust when confidence dries up. The dominoes are lining up.
    12 Mar, 09:08 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|