The mainstream and financial media seem to hate bonds.
Meanwhile, many individual investors I speak to are convinced the bond market has offered terrible returns over the past few years both in absolute terms and relative to the stock market.
(Indeed, the negative coverage in the media and investors’ dim view of bond market performance are likely related.)
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I see two big problems.
First, remember the old saw in journalism: “If it bleeds, it leads.”
In other words, the mainstream media chases emotion and excitement while focusing on those markets where their viewers and readers have the most exposure — that’s stocks, and stories about companies and political investment themes.
Second, many conflate bonds and Treasuries.
There’s no doubt Treasuries — US government bonds — are the most important fixed income market in the world. And Treasuries account for around 50% of the main US aggregate bond indices tracked by most fund managers with mortgage bonds accounting for an additional 20% to 25%.
When I speak about bonds at conferences, or in our periodic online chats with readers, the one ETF I’m asked about most often is the iShares 20+ Year Treasury Bond ETF (NYSE: TLT) that tracks long-term US government bonds, one of the most rate-sensitive corners of the bond market.
However, the truth is that while Treasuries dominate the news and investors’ attention, they’ve been one of the worst-performing segments of the bond market in recent years. There are plenty of under-the-radar niches of the bond, fixed income and credit markets, accessible using ETFs, that offer higher yields, lower volatility and strong total returns.
And the to paraphrase Mark Twain, reports of the death of the so-called 60/40 strategy are much exaggerated.
Our modified “Dynamic 60/40” strategy in Smart Bonds has produced 83.7% of the return from the S&P 500 since the close on June 28, 2024 (approximately a year ago) with a 46% reduction in volatility.
In this video, I delve into 3 specific reasons why I believe more investors should consider bond, credit and preferred ETFs as part of their portfolios. I’ll also highlight some of the market niches we currently see as more attractive than Treasuries including a couple of specific ETF recommendations.
DISCLAIMER: This article is not investment advice and represents the opinions of its author, Elliott Gue. Smart Bonds is NOT a securities broker/dealer or an investment advisor. You are responsible for your own investment decisions. All information contained in our newsletters and posts should be independently verified with the companies mentioned, and readers should always conduct their own research and due diligence and consider obtaining professional advice before making any investment decision.
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