Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I used to find Kiplinger the best of the monthly finance (print-) mags, but the quality of their advice seems to have grown increasingly shoddy since the 2008 crisis. A couple impressions from the link:
a. The writer, Steve Goldberg (SG), observes T-rates are very low, and bonds are priced high. No argument there, rather, a question-- Is this news to anyone? It shouldn't be. But, OK, that is the underlying premise of the article. So how to react to this condition...
b. His suggestion? "Stick to bond funds with relatively short average maturities. If you’re willing to take some risk, buy funds that invest in some lower-quality corporate bonds." Hmm? SG doesn't seem to know/acknowledge the difference between owning bonds vs bond funds. (Or perhaps Kiplinger doesn't want their columnists to mention indiv bonds, as it might upset their mutual-fund advertisers?) -- An investor can invest in individual Treasurys -- perhaps in a bond ladder -- hold them to maturity and encounter no loss of principal.
Instead, he suggests short duration funds. This is a very, VERY crowded trade, as investors have been shoveling money into these for years --- The last time I looked (and its been a while) many of the holdings of short-duration funds were trading at premiums to par. The funds yield very little. Buying funds which hold bonds trading at premiums is a guaranteed drag on performance -- all dollar-good debt will move to par as it approaches maturity. Holding a bag of premium priced bonds is a good way to see your capital be whittled down.
Contining -- he suggests lower-quality corp bonds. That sound like junk. So SG cautions us to avoid Treasurys due to risk, but posits junk bonds as a less risky alternative.... Huh? Junk funds may/may not be a good bet here, that is not the argument I am making. Rather that as a "risk avoidance" strategy, it would not occur to me move from Treasurys to junk. Also, corporates, whether junk or IG are spread-products, their prices will not be immune to significant rate spikes in Treasurys. If (admittadly-) overpriced Treasurys suddenly and violenty sell-off, its is unlikely in the extreme that junk bonds will be a destination for capital wanting a "flight to safety"...
Another idea -- mine, not SG's--- online FDIC-insured banks can be found offering MMFs which yield ~ 1%, with NO duration risk. If the column's premise is "ways to downsize risk in your fixed-income allocation, Why doesn't SG mention those? --- Perhaps they don't advertise with Kiplinger?
SG is one more reason to avoid subscribing to Kiplinger.
Comments
a. The writer, Steve Goldberg (SG), observes T-rates are very low, and bonds are priced high. No argument there, rather, a question-- Is this news to anyone? It shouldn't be. But, OK, that is the underlying premise of the article. So how to react to this condition...
b. His suggestion? "Stick to bond funds with relatively short average maturities. If you’re willing to take some risk, buy funds that invest in some lower-quality corporate bonds." Hmm? SG doesn't seem to know/acknowledge the difference between owning bonds vs bond funds. (Or perhaps Kiplinger doesn't want their columnists to mention indiv bonds, as it might upset their mutual-fund advertisers?) -- An investor can invest in individual Treasurys -- perhaps in a bond ladder -- hold them to maturity and encounter no loss of principal.
Instead, he suggests short duration funds. This is a very, VERY crowded trade, as investors have been shoveling money into these for years --- The last time I looked (and its been a while) many of the holdings of short-duration funds were trading at premiums to par. The funds yield very little. Buying funds which hold bonds trading at premiums is a guaranteed drag on performance -- all dollar-good debt will move to par as it approaches maturity. Holding a bag of premium priced bonds is a good way to see your capital be whittled down.
Contining -- he suggests lower-quality corp bonds. That sound like junk. So SG cautions us to avoid Treasurys due to risk, but posits junk bonds as a less risky alternative.... Huh? Junk funds may/may not be a good bet here, that is not the argument I am making. Rather that as a "risk avoidance" strategy, it would not occur to me move from Treasurys to junk. Also, corporates, whether junk or IG are spread-products, their prices will not be immune to significant rate spikes in Treasurys. If (admittadly-) overpriced Treasurys suddenly and violenty sell-off, its is unlikely in the extreme that junk bonds will be a destination for capital wanting a "flight to safety"...
Another idea -- mine, not SG's--- online FDIC-insured banks can be found offering MMFs which yield ~ 1%, with NO duration risk. If the column's premise is "ways to downsize risk in your fixed-income allocation, Why doesn't SG mention those? --- Perhaps they don't advertise with Kiplinger?
SG is one more reason to avoid subscribing to Kiplinger.