Anyone here allocate to bonds or all we all equity jockeys? What is the best way for a retail investor to get exposure? Presuming direct investments are out (as well as the increased risk), so I assume it it via mutual funds. Interested to know which funds/providers are recommended or if their are other channels to gain exposure.
ETF’s and managers as well. MF’s and direct buying are the more traditional routes though.
I see nothing wrong with private investors going for direct holdings. In many countries, if one purchases them directly from the issuer (I’m referring purely to sovereigns here) and not through a broker, transaction and holding costs are extremely low and sometimes even completely eliminated. Direct holdings are fine assuming one has a large enough investment base to achieve appropriate diversification. I’m wary of bond ETFs, as there is no fixed maturity date and there is constant interest rate risk present. Nevertheless, I haven’t ruled them out entirely, as they do offer diversification benefits at very affordable prices. Perhaps a small portion of the overall allocation to fixed income in such a vehicle is warranted. As far as mutual funds go, I’m not too up to date on the latest peergroup comparisons, but when I was looking a while back, Bluebay had some very strong looking high yield and investment grade products (EUR though). And then of coarse there’s PIMCO for the rest. I’m still underweight on bonds though, although I did narrow the gap slightly a while back.
for private portfolios, i would suggest direct-buying and to only go with an ETF / manager for high-yield (including bank loan) or emerging market bonds. those are the areas i believe where a manager can truly add value by selecting undervalued/safer issues and actively managing key rate and PVD risk. floaters are always popular too. i have seen some established brokers charge as low as about 3/8th on the dollar annually to buy individual issues for people in a bond account.
FYI, my thoughts on the bond market. We are in a bond fund asset bubble. The inflows to these investment vehicles have been absolutely massive. For an interesting comparison look at the equity fund inflows right before the tech bubble pop and then look at the fixed income fund inflows right now. The numbers are almost identical. I would expose myself to Fixed ETF’s mainly as a short hedge. For instance, picking up TBT if I was long 20 years. Right now people are more and more tempted to reach further out into the curve to grab whatever yield is left, the problem is they are becoming overexposed to ‘whip’ risk and thus they will get burned when the credit markets start to unwind the biggest carry trade of all time (read: FED raising rates). I agree with CapeCobra, PIMCO’s reputation preceeds its self and for good reason. Most PIMCO funds I look at are rock solid and they use almost an identical investment process/strategy as Blackrock (the PE shop) which has shown some AMAZING returns since inception. All in all, I would be more comfortable putting on speculative short-term trades in fixed income rather than looking for any kind of buy and hold strategy. If I had to make a ‘value’ play in the fixed space I wouldn’t go much further than 10 years out on the curve and try to keep duration pretty low.
I wouldn’t rule out a double dip just yet. If so, some long treasuries might not be so bad. As always, choose your sizing relative to the risk.
hold on, direct holdings = government bonds only or individual corporate bonds too? Not at all familiar with this market. Govvies can be low, but for corporates I would have thought you be talking $mm. What’s the minimum? I had in mind that corporates were traded on a telephone based dealer market (maybe the CFA curriculum has been updated since my time!)
“We are in a bond fund asset bubble. The inflows to these investment vehicles have been absolutely massive. For an interesting comparison look at the equity fund inflows right before the tech bubble pop and then look at the fixed income fund inflows right now. The numbers are almost identical.” the risk profile of these two investments is a bit different, no? particularly with treasuries, i was beating the short 'em all day long drum when the stimulus came out (and i made some money on the initial pop in long rates last year). but now U.S. sovereign debt, despite our massive unfunded liabilities, is the tallest midget in the circus, which justifies big international inflows, imo. the money has to go somewhere… Ben and No-Bama must have been saying their prayers, because I think the whole Eurozone debacle is going to allow them to pass the buck to the next administration.
I should’ve clarified. Treasuries I am bullish on, probably for a little while longer, I always get a little dicey holding onto a trade this long. Corp. Bond funds, however, I think are getting too much attention. Instead of a way to reduce risk from an equity dominante portfolio, they have migrated into being some peoples ONLY holdings.
OK, I’m with you here.
risk across the board is being priced too aggressively imo. It’s getting into PE real estate now too. end of last year there were basically no bidders on anything that didn’t have steady income coming from a credit tenant. now i’m competing with 20-30 other bidders on EMPTY buildings.
jbaldyga Wrote: ------------------------------------------------------- > risk across the board is being priced too > aggressively imo. > > It’s getting into PE real estate now too. end of > last year there were basically no bidders on > anything that didn’t have steady income coming > from a credit tenant. now i’m competing with > 20-30 other bidders on EMPTY buildings. Jesus, that doesn’t seem rational at all. WTF is going on? In Miami I can see TWO new apartment buildings going up while the one I am in and the 13 in the half mile radius of me sit virtually empty. I need to step my income game up, I would LOVE to own a few properties. Rent them out at maybe a 10% margin, not bad for a 22 y/o.
speaking of PE, did you guys see that PE and hedgies are monetizing whistleblower payouts? truly ingenious.
I was gonna post a thread on that, but I couldn’t find a way to incorporate “blow” and “money” into the title…
lol btw, Loomis Sayles is a good bond shop too so worth a look apart from the obvious PIMCO.
I’m about 30% bonds in my personal account. About 50/50 short and intermediate term, very little long term. I buy through funds and will buy treasuries directly. I don’t do bond ETF’s most are selling at a premium. When looking for bond funds, low cost trumps. The problem with buying direct is the costs for a small time investor. If you’re allocating 25-50k per issue it’s not a big deal, and there is plenty of liquidity. But try buying 1-5k of an issue and after paying brokerage costs the yield takes a 20% haircut. Seems like most people on this board are younger with no money in the markets which makes no sense on buying bonds directly.
Muddahudda Wrote: ------------------------------------------------------- > hold on, direct holdings = government bonds only > or individual corporate bonds too? Not at all > familiar with this market. Govvies can be low, > but for corporates I would have thought you be > talking $mm. What’s the minimum? In Europe you can get in on corporates for as low as EUR 1000 nominal.
CapeCobra, who do you go through?