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Bond based strategy

General discussions about equity high-yield income strategies
Alaric
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Bond based strategy

#321851

Postby Alaric » June 26th, 2020, 3:08 pm

GoSeigen wrote:Indeed, and shares have frequently been touted as superior (to keep it simple) to fixed interest because the dividends could be raised but that was rarely balanced by an honest recognition that they might also face dividend cuts and underperform the FI.


I wonder what sort of income return an investor in Corporate Bonds, Prefs, PIBS etc. could have expected to make in the past and ongoing? They would hold the Bonds to maturity naturally enough, so if interest rates had fallen, the income might tail off over time as higher yielding bonds matured.

Up to a point, an investor could set their own return by deciding how far to venture into junk territory. Default risk could be somewhat unpredictable with a limited selection.

Practical problems could be spreads and the difficulty of buying in a required quantity. That cuts both ways with some issues only available in institutional sized chunks, but others only available in small quantities.

In current circumstances, many bond investors would be converting capital into income by virtue of coupons exceeding yields.

A Bond fund or ETF is likely to be continuously investing so as to maintain a near constant outstanding duration over time

dealtn
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Re: Bond based strategy

#321855

Postby dealtn » June 26th, 2020, 3:22 pm

Alaric wrote:I wonder what sort of income return an investor in Corporate Bonds, Prefs, PIBS etc. could have expected to make in the past and ongoing?


You might be more likely to get an answer from that particular investor base were you to ask that question on the "Gilts and Bonds" Board.

GoSeigen
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Re: Bond based strategy

#321889

Postby GoSeigen » June 26th, 2020, 5:39 pm

Alaric wrote:
GoSeigen wrote:Indeed, and shares have frequently been touted as superior (to keep it simple) to fixed interest because the dividends could be raised but that was rarely balanced by an honest recognition that they might also face dividend cuts and underperform the FI.


I wonder what sort of income return an investor in Corporate Bonds, Prefs, PIBS etc. could have expected to make in the past and ongoing? They would hold the Bonds to maturity naturally enough, so if interest rates had fallen, the income might tail off over time as higher yielding bonds matured.

Up to a point, an investor could set their own return by deciding how far to venture into junk territory. Default risk could be somewhat unpredictable with a limited selection.

Practical problems could be spreads and the difficulty of buying in a required quantity. That cuts both ways with some issues only available in institutional sized chunks, but others only available in small quantities.

In current circumstances, many bond investors would be converting capital into income by virtue of coupons exceeding yields.

A Bond fund or ETF is likely to be continuously investing so as to maintain a near constant outstanding duration over time


There are many ways to skin a cat as you've alluded to above. This is a broad subject!

My own point was a narrow one: that there are times (a minority of the time, yes) when fixed income is a better bet than discretionary income (dividends) and it seemed to me a mistake to think about the advantages of shares over FI without considering also the disadvantages. Perhaps it's at times like this that the mistake is exposed.

I do welcome this new thread to discuss the broader aspects, but should make clear, I'm beginning to think myself that now is NOT one of those times when fixed income is going to outperform shares, at least not in a sustained manner anyway.

The period from 2017 to now is when I really focused on FI in my own investing and that proved both profitable and also very good for sleep patterns! In fact I probably tapered off my FI exposure too early; until 3-4 years ago CAGR was at 15% plus; having moved to shares that has dived to around 12% over the whole period. [This is on a total return basis of course, I don't understand the fixation of some on income, especially when dealing with bonds and especially in this low-yield world.] So for me there has been a period when bonds did very well.

Going forward I doubt it's so clearcut. I foresee periods of violent adjustment (because duration) after which shares affirm their ascendancy. I'm still working out how to play it.

Sorry a personal perspective, hopefully others will bring a more reasoned/researched view.


GS


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