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Do Bonds Make Sense For Long-Term Investors (Part II)Brian Romanchuk • Jan. 13, 2014
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Nov. 17, 2014, 12:46 PM
- Gluttons for punishment, bond bears are at it again, as - asked in a Bloomberg poll to choose just one asset class to short - 45% choose some sort of fixed-income product. That amount is three times the percentage who selected gold, and also higher than that of stocks, commodities, currencies, and real estate.
- “For rates to go a lot lower in the U.S. from the point they are trading at right now, things would have to go very bad in terms of growth,” says a money manager, neatly summing up the conventional wisdom.
- ETFs: AGG, BND, BOND, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GBF, GVI, YPRO, FBND, BYLD, IUSB, AGND, AGZD, VBND
May. 29, 2014, 12:32 PM
- "Being different is absolutely essential if you want a chance at being superior," says Howard Marks. Hoping to return to the top of the heap in fixed income performance, Bill Gross is at odds with many on the Street, loading the portfolio of the Total Return Fund (ETF: BOND) with Treasurys in the belly of the curve.
- The play is a bet on Gross' "new neutral," in which the neutral Fed Funds rate is at least a couple of hundred basis points less than commonly believed. If he's right, Treasurys with duration in the 3-7 year area should benefit the most as rate hikes are postponed or come in at a far slower pace.
- "Once they see the whites of the eyes of full employment, they will want to normalize rates at a faster clip," says Jonathan Beinner, co-head of global fixed income at Goldman Sachs Asset Management, summing up the conventional Street wisdom.
- ETFs: AGG, BOND, BND, BIV, SCHZ, LAG, SAGG, GBF, GVI, SHY, BIL, SHV, VGSH, SCHO, SST, TUZ, DTUL, DTUS
- Previously: Pimco: "New neutral" explains Treasury rally
May. 16, 2014, 9:13 AM
- Harkening back to the "new normal" thesis peddled by former colleague Mohamed El-Erian for the past few years, Bill Gross (BOND) talks of a "new neutral" to try and explain why 2.50 on the 10-year Treasury is a perfectly reasonable yield.
- With debt remaining high and economic expansion continuing to be lame, the "new neutral" real Fed Funds rate is about 0%-0.5%, says Gross, along with Richard Clarida. "If the new neutral policy rate is 0% and the Fed achieves its 2% inflation target, than the 10-year Treasury should trade at close to 2%."
- The investment implications: Bubble risk is lower than expected as markets have priced in a real Fed Funds rate of 1-2% and nominal of 3-4% by the end of the decade. If the "new neutral" of 0% real rates and 2% nominal plays out, asset markets could see plenty of support.
- ETFs: AGG, BOND, BND, SHY, BSV, BIV, BLV, SCHZ, BIL, PLW, SHV, GOVT, VGSH, LAG, SCHO, BYLD, ILTB, SAGG, ISTB, SST, GBF, TUZ, GVI, DTUS, DTUL, MINC, FWDB, AGND, AGZD
May. 8, 2014, 3:04 PM
- Maybe more worried about having cash on hand to meet redemptions than beating their benchmark, bond fund managers have taken cash levels up to 7.6% of AUM at the end of March vs. 3% four years earlier.
- Times have changed in fixed-income land - banks have cut thousands from trade desks and shrunk their books of inventory, making it harder for debt managers to exit positions and raising the chance of far more price volatility should there come a rush to sell.
- Fund performance is being punished: The broad U.S. bond market up 3.2% this year - the best gains since 2010, according to BAML. Non-traditional bond funds - in which managers have flexibility to decide where to invest - are ahead just 1.7%.
- Broad bond ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, BYLD, SAGG, ISTB, DI, ILTB, GBF, GVI, MINC, LDUR, FWDB, AGND, AGZD
Apr. 23, 2014, 12:51 PM
- The iShares Yield Optimized Bond ETF (BYLD) will give investors to a broad array of fixed income securities listed in the U.S.
- Unlike its wildly popular Core Total U.S. Bond Market ETF (AGG), according to the recently updated SEC filing BLYD will offer exposure to both investment grade and non-investment grade securities.
- Other total U.S. bond ETFs: BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GBF, GVI, MINC, FWDB, GIY
Apr. 2, 2014, 2:55 PM
- "The reported 'great rotation' out of fixed-income seems to have been short-lived," writes Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors. Short of an inflation scare - not on the horizon at the moment - he doesn't see investors exiting the sector en masse in the coming years.
- Worried about volatility and the fact that most bond funds and ETFs never mature (target-date ones don't)? Rehling suggests buying high-quality paper directly and creating bond ladders which allow cash to be received and then put back to work at potentially higher rates.
- ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, GBF, ISTB, MINC, FWDB, GIY
Mar. 26, 2014, 3:06 PM
- Private pension funds and insurance companies - their equity exposure rising along with stock market - have returned to the long end of the curve this year to rebalance their portfolios, says JPMorgan Private Bank CIO Richard Madigan, helping to support prices as Fed dials back QE.
- Madigan didn't and doesn't expect a "great rotation" from fixed income to equities, instead arguing the boost in equity inflows has come and will come at the expense of too-high cash balances. Why own fixed income? Bonds continue in their role of buffering other investment risk in portfolios.
- "In the middle of everything lies opportunity," said Einstein. We're mid-cycle in the global recovery, says Madigan, maybe frustrating those late to invest, but still offering plenty of opportunity.
- ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, DI, GVI, ISTB, GBF, LDUR, MINC, FWDB, AGND, GIY, AGZD
Mar. 6, 2014, 3:08 PM
- 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
Mar. 4, 2014, 8:21 AM
- Permanently on the whiteboard of Pimco's Investment Committee boardroom is its concentric circles of asset classes, with the Fed Funds rate occupying the center and stocks and real estate far on the outside. "Change the price of credit at the center and you change the price of assets at the outer extremities," writes Bill Gross.
- Risk assets may be high-priced, but they're not necessarily mis-priced as long as ZIRP continues. Key, says Gross, drawing on Yeats' "Second Coming," is whether the center holds, i.e. can investors be convinced of the Fed's credibility as it shifts from a quantitative to qualitative assessment of whether to tighten policy.
- "Artificial prices will not be mis-priced if circling falcons can be convinced of the efficacy of qualitative forward guidance. We believe that will be the case. Carry trades, then, in numerous forms should be profitable."
- Redemptions from Gross' Total Return Fund (ETF version: BOND) slowed to $1.6B in February, the slowest pace of outflows since the bond market blew up last May.
- Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, ISTB, GBF, MINC, FWDB, GIY, AGND, AGZD
Feb. 13, 2014, 1:54 PM
- The Guggenheim Enhanced Core Bond ETF (GIY) is scheduled to close on March 7th after 4 years of trading.
- Competing with the iShares Core Total U.S. Bond Market ETF (AGG) and Vanguard's Total Bond Market ETF (BND) has proven an uphill climb; both have accumulated $15 billion and $19 billion in assets respectively while GIY has only $5 million.
- Other broad Bond ETFs: BOND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, ISTB, GBF, MINC, FWDB
Jan. 22, 2014, 4:02 PM
- The Pimco Diversified Income Exchange Traded Fund (DI) will replicate a portfolio of global bonds with maturities between 3 to 8 years.
- The Pimco Low-Duration Exchange Traded Fund (LDUR) will feature a portfolio of investment-grade debt with duration of 1 to 3 years.
- Both funds will launch on January 23rd, almost 2 years after Pimco's first successful mutual fund replication, the Pimco Total Return ETF (BOND).
- Other intermediate term, total market ETFs: VCIT, CIU, ITR, PFIG, GVI
- Other short duration, total market ETFs: VCSH, CSJ, SCPB, BSV, BIV, HOLD, MINC, ISTB
Jan. 16, 2014, 3:14 PM
- "We actually saw institutions selling equities and buying bonds, especially the long end of the curve," says BlackRock (BLK +1.7%) CEO Larry Fink, making the rounds after a big earnings report this morning. Institutions with big profits in stocks are asking themselves if they need such large exposure to equities, he continues. "The answer was that they need to be a little more balanced."
- Fink's comments square with other reports of a rotation back into fixed income as corporations all of a sudden find their pension funds fully funded thanks to the market rally.
- Within fixed income, Fink sees another rotation - and that's out of paper pegged to something like the Aggregate Bond Index (AGG +0.2%) and into "unconstrained" bond funds - not tied to the long end, but instead trying to grab yield without adding duration.
- Related ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GVI, GBF, FWDB, MINC, HOLD, GIY, AGND, AGZD
- BlackRock earnings coverage
Jan. 13, 2014, 5:48 PM
- Active ETF sponsor, AdvisorShares, announced today that the Sage Core Reserves ETF (HOLD) will be open for trading Wednesday morning.
- HOLD will be invested in a broad base of high quality, fixed-income securities, in an effort to not only maintain steady income, but to manage risk and duration.
- “We believe HOLD delivers a compelling investment solution with the benefits of a liquid, transparent and efficient actively managed ETF by leveraging Sage’s well-established track record and expertise as a fixed income manager” said Noah Hamman, chief executive officer of AdvisorShares in an earlier statement.
- Other total market fixed income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, GVI, GBF, ISTB, FWDB, MINC, GIY
Jan. 13, 2014, 12:34 PM
- Maybe supportive of fixed income this year are pension plans - which find themselves as fully funded as they've been in a long time - shifted money out of stocks and into bonds in Q3 at the fastest pace since 2008.
- Ford was among those locking in equity gains, boosting its debt investments to 70% last year from 55% in 2012, and is now looking to raise the level to 80%. Ryder System is increasing its debt allocation to 45% from 30%, says Treasurer Dan Susik. "Pension plans don’t want to give back the gains that essentially took over five years to accumulate," says Millman's Zorast Wadia.
- Treasurys are having another good day, the yield on the 10-year off 2 bps to 2.84%.
- Broad fixed-income ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GVI, GBF, FWDB, MINC, GIY, AGND, AGZD
Jan. 9, 2014, 8:47 AM
- "If you’re on the wrong end of an interest rate teeter totter headed up, it makes you wonder why anyone would own bonds or at least why anyone would own longer-term bonds," writes Bill Gross (BOND) after closing out a rough 2013. "That question and its answer are the key for 2014."
- Stop worrying so much about that number coming out on the first (occasionally 2nd) Friday of each month, he says, as inflation, not unemployment will be the critical statistic for gauging Fed policy going forward (the PCE is release around the 20th each month). There will be no policy hike until both unemployment and inflation breach their thresholds, says Gross, and they're not even thresholds; "they're forks in the road that may, or may not lead in a different direction." At the moment, annualized PCE inflation of 1.2% is nowhere near the target of 2%.
- Gross isn't calling for a bond bull market, but - if he's right about inflation - it will be realistic to expect positive fixed income returns in 2014.
- Related ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, PLW, GOVT, LAG, SAGG, ILTB, ISTB, TRSY, GVI, GBF, FWDB, MINC, GIY, AGND, AGZD
Jan. 7, 2014, 3:35 PM
- Bond mutual funds and ETFs had a record $86B in withdrawals last year, according to TrimTabs, the first net outflow since 2004, and topping the record $62B amid the bond market tumble in 1994.
- Over the last seven months of 2013, bond funds saw $196B in withdrawals - a whopping figure, but coming against $1.2T in inflows from 2009-2012.
- Stock funds saw inflows of $352B, breaking the $324B record set in 2000.
- Related ETFs: AGG, BOND, BND, BSV, BIV, BLV, SCHZ, LAG, SAGG, ILTB, ISTB, GVI, GBF, FWDB, MINC, GIY, AGND, AGZD
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