“ I think in the near term 40-60 makes more sense if you can get yields at these levels,” Rieder said during an interview with MarketWatch reporter Christine Idzelis, adding that insurance companies, pension funds, endowments and other institutional investors can easily earn a yield of 5% to 6% from a portfolio of short-dated bonds, with some high-yield assets mixed in.” Read full storyIt’s become become difficult to access WarketWatch articles. Good luck if you attempt.
Disclosure - I’m substantially less weighted towards fixed income than Rieder recommends.
Comments
To friends who have already suffered historic bond losses this year, I have suggested to shift "some" to stocks for better recovery. Better yet, to use multi-asset funds that mix stocks-bonds-alternatives (FMSDX, VPGDX, etc).
Here is a graphic from Bloomberg posted on Twitter that shows how unusual 2022 has been with simultaneous large declines in both stocks and bonds - 1931, 1969, 2022.
In hindsight, it would be better to hold cash in place of bond. But the aggressive rate hike surprised many bond investors. Perhaps when US slides into recession in early 2023 and the inflation starts to fall, the Fed will change their position.
As for allocation funds, a couple 60/40 (bonds/stocks) from TRP sport the following YTD numbers:
PRSIX -17.6% / TRRIX -17%. Even highly esteemed VWINX is off 15% YTD. If you check equity heavier conservative funds like PRWCX and DODBX you’ll find both have held up somewhat better than those bond and allocation funds I cited.
Of course managers can use derivatives to make their bond funds perform a lot better or even buck the trend, as I’ve sure some have done. But for the “plain vanilla” category further out on the curve there’s not a lot to recommend them over equities up to this point. None of this will cut your losses or make you feel better. Just a humble attempt to look at a few categories that longer term oriented investors tend to rely on.
Re Rieder’s suggestion - Note there is an air of market timing in what he says. He’s talking about a temporary shift to fixed income to take advantage of the spike in short term rates. I’d expect Rick to “ring a bell” to announce when the day arrives when we should move out of that defensive position into “growthier” holdings.
Most recent YTD numbers from Bloomberg I’ve glanced: Dow -18% / S&P - 25% / NASDAQ - 35%.
While it’s dangerous to try to equate this with another period (No two are the same.) - if you were to overlay this bear decline on top of the ‘07-‘09 bear market, I suspect in both magnitude of losses and duration we’re somewhere around the mid-way point.
I don't understand why they didn't move rapidly into short term bonds and cash. The bonds they held were almost guaranteed to lose 5 to 10%
I can only assume this is a case of being stuck as their mandate did not allow 70% cash
Europe is in the early phase of contraction and US will likely to follow in early 2023. One possible scenario is inflation to remain high, say 5-6% (not the 2% target) and economy slides into a recession, what will the Fed do?
In another post of WealthTrack interview with David Giroux of PRWCX, he uses bank loan and treasury (recent addition) in his fixed income portion of the fund. The portfolio responded to this year environment much better than VWINX even though PRWCX holds many growth stocks. https://mutualfundobserver.com/discuss/discussion/comment/154372/#Comment_154372