Bond Risk Rising with Rates
The price returns on convertible, high yield (U.S. HY) and floating rate bonds are also negative. The total return of these three bond categories is positive because of the relatively high yield overcoming the loss of face value.
If interest rates rise by more than 1%, the bond problem becomes worse.
Bonds may no longer be a way to de-risk your portfolio. In the current market environment, bonds may be adding to the risk of loss.
The Active Equity Answer
World economies are growing. The chart below shows manufacturing activity by region and country. Numbers greater than 50 indicate expansion. Green represents growth. The time scale runs across the top from April 2015 on the left to March 2017 on the right. For March 2017, all areas are green(ish) and greater than 50 except for Greece, Korea and Brazil. The global PMI is 53.0. At 49.6, Brazil looks like it is gaining strength and may move into expansion territory soon.
After an eight year recovery in U.S. equities and a more than three decade bull market in bonds, we may be entering a new investment chapter. In the new chapter, active asset allocation outside of the U.S. and active portfolio risk mitigation may deliver materially better results with lower risk than the S&P 500 index and the traditional buy-and-hold 60%/40% stock/bond portfolio.
One of the keys to investing is sifting through all available information and sticking to a plan. Somehow, we need to control our emotions about something that is very important to each of us. We invite you to call or email anytime if you have questions about how we can help you with your wealth management. Please give us a call at (415) 249-6337 or email us at firstname.lastname@example.org to learn more.
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This commentary and a sampling of previous editions are available as PDFs:
4/7/2017: Bond Risk Rising with Rates
3/31/2017: Exclusive Stock Market, Higher Stock Price
3/24/2017: Indications of a Positive Stock Market Future
3/17/2017: Hallelujah, Reflation!
3/10/2017: Small Cap Stock Divergence
3/3/2017: Velocity Pivot Good for Stocks
2/24/2017: How Safe Are The Banks
2/17/2017: Climbing A Wall of Worry
2/10/2017: Value Shopper - Europe on Sale
2/3/2017: What, Me Worry
1/27/2017: Extraordinary Earnings Louder Than Trump
1/20/2017: It's Not All About Trump
12/30/2016: Predicting the Future -2017
12/2/2016: Trade What Is, Not What You Think It Should Be – 2017 Outlook
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