The managers think simplicity is overvalued, highlighting the multi-year run - up
in bond proxies that are perceived to be safe and offer low volatility.
Not exact matches
But even if rates remain relatively low, the
bond market
proxy sectors look extremely vulnerable, as their valuations are highly sensitive to increases
in interest rates.
Since 1900 stocks returned 6.5 % annualized after inflation,
bonds 2 % and cash — using T - bills as a
proxy — just 0.8 %, according to London Business School academics Elroy Dimson, Paul Marsh and Mike Staunton
in research forCredit Suisse.
Stocks with a history of consistently growing their dividends have historically tended to perform well and exhibit less volatility
in a rising rate environment, while high yielding dividends, often considered «
bond - like
proxies,» have tended to be more vulnerable (due to their high debt levels) and have historically followed
bond performance when rates rise.
Risk factor analysis shows that equity market sectors that act like «
bond proxies» may be more sensitive to changes
in interest rates than
bonds themselves.
Unlike certain «
bond market
proxies» — companies like consumer staples, utilities and REITs — they may be less affected by the gradual rate hikes the Fed seems to have
in mind.
I think these are some of the best shorts
in the current environment where
bond proxies ought to suffer and a secular decline
in retail ought to hurt renewal rates on the underlying leases.
In their May 2015 paper entitled «Lumber: Worth Its Weight in Gold: Offense and Defense in Active Portfolio Management», Charles Bilello and Michael Gayed examine the recent relative performance of lumber (a proxy for economic activity via construction) and gold (a safe haven) as an indicator of future stock market and bond market performanc
In their May 2015 paper entitled «Lumber: Worth Its Weight
in Gold: Offense and Defense in Active Portfolio Management», Charles Bilello and Michael Gayed examine the recent relative performance of lumber (a proxy for economic activity via construction) and gold (a safe haven) as an indicator of future stock market and bond market performanc
in Gold: Offense and Defense
in Active Portfolio Management», Charles Bilello and Michael Gayed examine the recent relative performance of lumber (a proxy for economic activity via construction) and gold (a safe haven) as an indicator of future stock market and bond market performanc
in Active Portfolio Management», Charles Bilello and Michael Gayed examine the recent relative performance of lumber (a
proxy for economic activity via construction) and gold (a safe haven) as an indicator of future stock market and
bond market performance.
This also means that triple net lease REITs, which are often used by yield - hungry investors
in a low interest rate environment as
bond alternatives, can be thought of as very long - term duration
bond proxies.
Strong growth provides a solid foundation for stocks, we believe, but this experience makes it worth considering whether
bond proxies can provide the same downside protection
in the coming quarters as they have historically.
High - yielding
bond proxies did not offer downside protection
in the February stock rout.
Using the five - year Treasury as and the S&P 500 my
proxies,
bond yields have exceeded earnings yields by as much as 8 %
in the mid -»50s, while earnings yields have exceeded
bond yields by more than 4 %
in 1981, 1984 and 1987.
They are the information technology sector
in the US (driven by the so - called «FANG» stocks of Facebook, Amazon, Netflix and Google) and the consumer staples sectors
in the UK and continental Europe (driven by the so - called «
bond proxy» businesses).
Case
in point: High - yielding stocks can sometimes serve as
bond proxies, and lose value when rates rise.
Using the 10 - year U.S. Treasury
Bond yield as the
proxy for interest rates, Exhibit 1 shows the historical performance of the S&P 500 Low Volatility and S&P 500 indices
in periods of significantly increased interest rates.
Unlike certain «
bond market
proxies» — companies like consumer staples, utilities and REITs — they may be less affected by the gradual rate hikes the Fed seems to have
in mind.
Interestingly,
in this environment there is an opportunity to buy stocks with similar fundamentals to the
bond proxies but at lower valuations.
If interest rates rise, there is plenty of risk
in both
bond funds and stocks (utilities and classic dividend stocks) that are
bond proxies.
Their main performance metric is 7 - factor hedge fund alpha, which corrects for seven risks
proxied by: (1) S&P 500 Index excess return; (2) difference between Russell 2000 Index and S&P 500 Index returns; (3) 10 - year U.S. Treasury note (T - note) yield, adjusted for duration, minus 3 - month U.S. Treasury bill yield; (4) change
in spread between Moody's BAA
bond and T - note, adjusted for duration; and, (5 - 7) excess returns on straddle options portfolios for currencies, commodities and
bonds constructed to replicate trend - following strategies
in these asset classes.
Enhanced Yield clients have a dividend stock program with covered calls, designed as a cautious
bond proxy and targeted for 9 % after commissions and fees, even
in a sideways or slightly declining market.
One strategy previously tested was to combine a long ETF portfolio with a position
in either SPY, SHY (iShares 1 - 3 Year Treasury
Bond, used as a
proxy for cash or a relatively neutral position), 0r SH.
Utility stocks tanked hard starting
in mid-November on worries about rising interest rates, which can be bad for supposed «
bond proxies» like utes.
And while
bond investors have suffered setbacks recently as yields have risen by more than a percentage point from their 2016 lows
in part because of concerns that tax cuts and infrastructure spending
in a Trump administration could spur inflation, the Bloomberg Barclays U.S. Aggregate
bond index — a good
proxy for the investment - grade taxable
bond market — is actually up almost 2 % from the beginning of the year.
Risk factor analysis shows that equity market sectors that act like «
bond proxies» may be more sensitive to changes
in interest rates than
bonds themselves.
Amongst the well - known
proxies that have revealed a millennial - scale climate variability during the Holocene, the ice - rafted debris (IRD) indices
in the North Atlantic developed by
Bond et al. (1997, 2001) present a cyclicity of 1470 ± 500 years, which matches the 1228 ± 327 - year periodicity evidenced
in the Mar Menor, considering the respective uncertainties
in the periodicities.