tjh290633 wrote:GS has shown a rate of return from fixed interest which obvious indicates a method of buying with a higher yield, holding until the yield has fallen and then switching to a similar bond. I have done something similar in a small way in the past with my mother-in-law's small portfolio, when interest rates were very high. I only have paper records, unfortunately, and the period covered was from 1975 until 1993. One of the gilts bought at the outset was T97 8.75%, standing at £64.50 with a ruhning yield of 13.6%. It was sold in 1993 at £108.72, when the yield had fallen to 8.05%. Another was T93 13.75% bought at £94.75 and sold in 1986 at £126.00, the yield having fallen to 10.91% as it headed for redemption.
Among those bought to replace the gilts sold was T98 15.5%, which was standing at £147.25 when bought, with a yield of 10.87%. Sold in 1993 at £137.75, the yield having risen to 11.25%. It would take me some time to recreate a cash flow, which I may do for interest. I am sure that the IRR would have been quite high.
It's hard to know how GS derived his numbers without seeing some of the detail, as you have done regularly. It's obviously possible that he might have bought bonds way back when yields were in double figures. I owned that 1998 15.5% gilt for a while myself. But that is not a repeatable exercise and hasn't been for a long time.
There are other ways to get returns from bonds that are more like equities. You can borrow at an interest rate lower than the bonds you are buying. You can borrow in a low interest currency like CHF and buy, say, Danish mortgage bonds. You can focus on junk bonds which, if you happen to get your timing right, can give equity like returns. You can even take a punt on bank preference shares in a financial crisis and hope that the government bails you out. And so on. Basically you are doing what you can do with equities and take on more risk, in the case of bonds usually interest rate risk or credit risk.
The question is how that all works out if we now have 40 years of rising yields to follow the 40 years of falling yields that have flattered the numbers for every bond investor. I have no use for bonds at this point in the cycle.
Of course if we want to cherry pick dates and returns, how about the S&P 500 over the last 12 years since the March 2009 intra-day low? That index is up 16% a year compounded, before dividends and currency gain. That beats every one of the returns cited. Trackers don't have to be "mediocre".