The traditional role of bonds in a diversified portfolio has changed. Historically, bonds served a dual role of providing steady income while also offsetting the volatility that comes from owning stocks. With the Federal Reserve holding interest rates near 0% for the foreseeable future, the income story has almost completely evaporated. With income off the table, is it prudent to still own bonds?
Topics: Fixed Income, bonds
I was recently watching a news program in which a commentator generalized Exchange Traded Funds (ETFs) as “cheap” and mutual funds as “expensive”. Too often, we dismiss all ETFs as index following and therefore “cheap” and all mutual funds as being actively managed and therefore “expensive”. In reality, an ETF or a mutual fund is simply a packaging solution that can contain a variety of assets and styles of investing. In order to properly assess whether a particular solution is priced appropriately, we must first dissect the package to understand which investments are included and how they are managed.
Topics: Overlay, Volatility, ETF, mutual fund
It’s been over a decade since I last grilled using charcoal. This past weekend I found a half-used bag of Kingsford and decided to give it a try. This particular brand of Kingsford was “Match Light” which should catch instantly to get the coals burning.
Topics: Overlay, Volatility
Since 1976, there have been 3 periods where a balanced portfolio (60% stocks / 40% bonds) have experienced drawdowns of greater than 10% - after the 1987 crash, the recession in the early 2000’s and the financial crisis in 2007-2008. While each of these are unique in their own way, they do have one thing in common, we recovered.
Topics: Overlay
With all areas of the market in turmoil, there has been extra scrutiny placed on ETFs and their role in the financial markets. ETFs have seen exponential growth over the past decade, as investors have gravitated towards typically lower costs, tax advantages, and intra-day trading capabilities. With this meteoric rise, investors who are not familiar with this structure can get spooked and fear a bubble building in the market.
We often get asked how our overlay strategy might behave in a black swan event. Well, no time like the present to review our standard answer to this question and see how it’s holding up in reality.
Topics: Overlay
The Federal Reserve has indicated both through their actions (lowering the Fed Funds Rate three times in 2019) and through their commentary that they intend to keep rates relatively low in the near-medium term. While this is intended to be accommodating to the economy, it poses a challenge for institutions and individuals seeking to generate distributive income through their investments.
Topics: Overlay, ETF, Fixed Income
The end of a year is always a good time to reflect on what just happened and try to take a guess as to what lies ahead. Coming off 2018 where nearly nothing worked in portfolios, this year has proven to be the exact opposite with all major asset classes posting positive returns through the end of November. Not only have the returns been positive, they have been exceptionally strong for both stocks and bonds.
Topics: Overlay, Theta Income
