Displaying items by tag: rates

(New York)

Barron’s ran an interesting article today chronicling the market views of famed investor Leon Cooperman. The legendary hedge fund manager argues that investors should stay away from bonds, but that stocks are “fundamentally cheap”. “My world is cash and stocks … I think bonds are the bubble”, says Cooperman. He argues that a big downturn in stocks is not in the cards because the economy “if anything, is too strong”.

FINSUM: This argument makes sense, bonds do seem overvalued. However, what if stocks and bonds are too pricey? That seems logical too.

(New York)

Short-term bonds are looking like an ever better buy right now. Two-year Treasury yields are at 2.87%, up from 1.55% a year ago, and well over the 1.9% average yield of the S&P 500. That means the spread between the two- and ten-year notes is only about 28 basis points. Considering the latter has significantly more rate risk, two-year bonds like a good bet right now.

FINSUM: There are many ultra short-term bond funds out there to choose from. Actually, given the breadth of ETFs in the space, there has never been a better or cheaper time to play defense in this kind of rate environment.

(New York)

One of the challenges that all advisors are dealing with at the moment is how to handle rising rates and their affect on portfolios. There are good options out there for handling the challenge, like rate hedge ETFs, but within the efforts to defend against losses, there have a been a few hard-to-predict moves. One big surprise has been the performance of utilities stocks. Utilities generally lose when rates rise as their yields look relatively less attractive. However, utilities are outperforming the market, with a flat performance this month through Monday, and a 6% gain in the last three months. Explaining the gains, one fund manager says “'In a market like this, in a dramatic sell-off, the rotational effects will be higher than the interest rate effect”.

FINSUM: We sort of understand the safe haven status, but how does a rate-sensitive sector become a safe haven from rate-driven losses? Nonetheless, utilities stocks are doing well.

(New York)

Want to maintain your portfolio’s income, but also afraid of rising rates? Many are, as it is a difficult challenge keep income high but not experience losses. With that in mind, here are a handful of mutual funds which should help do just that. One area to look for diversified income right now is in multi-asset income funds. Some of the best are the American Funds Income Fund of America (AMECX), the Vanguard Wellesley Income (VWINX), the BlackRock Multi-Asset Income (BAICX), the JPMorgan Income Builder (JNBAX), and the Principal Global Diversified Income (PGBAX).

FINSUM: Many of these funds are quite old and have had great performance. Fees are all over the map, but one of the areas where they tend to succeed is in having good performance with lower volatility than the market as a whole.

(New York)

Whether investors like it or not, the market seems to have finally come to grips with the reality of higher rates. That realization has started to change the performance of different assets from even a week ago. So who will win and who will lose? On the positive side, financials and banks seem likely to benefit, as they make a great deal of their income from interest. Energy and materials stock are likely to shine as well as they benefit from the expanding economy. On the losing side will be utilities, housing, and autos stocks, all of which are sensitive to higher rates in their own ways. No one can be sure how tech might respond, as the sector is young enough that there is not good evidence to say how it might react.

FINSUM: The business case for how most sectors will be impacted by higher rates is clear. If only share performance were so simple.