The CORP and LQD lost as much as 20%- 25% of their value during the 2020 downturn. The Short term bond fund, VCSH, on the other hand, only lost half as much.
If looking for a defensive edge to your portfolio, I would think that the VCSH is a better option.
It does have a smaller yield, but it also has lower management fee, so those factors probably cancel themselves out.
I guess it does make sense to diversify across both long and short terms, though.
yes, when rates rise fast, LQD and CORP will get hammered very badly. During the great rate rise I owned virtually no bonds but VCSH, for that reason...probably the best allocation investment decision I made in the last 20 years.
Now is different...CORP and LQD are yielding over 5% so there is a much larger margin of error now. Hard to see rates going much higher.
The weird thing about an inverted curve is that VCSH, short term bonds, yields more than these two funds, which own longer term bonds. So I own all three...I figure rates on longer term bonds are likely to fall, and CORP and LQD should benefit more than VCSH should rates fall across the curve.
But you have to be careful when defining 'defensive.' If there is a standard recession, rates will fall, and for every one percent fall in rates LQD will gain 8%, while VCSH might rise only 3%. So which is the defensive play? Tricky stuff.
I've been digging into this a bit more and one that may interest you is Franklin Senior Loan ETF (FLBL). It's interest rate floats so it changes as interest rate change. And a whopping dividend, currently showing over 8%.
Returns over recent durations have been favorable, Expense ratio is a bit higher than some (0.45%), but the performance and dividend should make up for that, and that isn't that high anyways.
Floating rate sounds like a good strategy, esp. for those of us that don't pay a lot of attention to bond market.
Maybe that might work for you.
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yes, when rates rise fast, LQD and CORP will get hammered very badly. During the great rate rise I owned virtually no bonds but VCSH, for that reason...probably the best allocation investment decision I made in the last 20 years.
Now is different...CORP and LQD are yielding over 5% so there is a much larger margin of error now. Hard to see rates going much higher.
The weird thing about an inverted curve is that VCSH, short term bonds, yields more than these two funds, which own longer term bonds. So I own all three...I figure rates on longer term bonds are likely to fall, and CORP and LQD should benefit more than VCSH should rates fall across the curve.
But you have to be careful when defining 'defensive.' If there is a standard recession, rates will fall, and for every one percent fall in rates LQD will gain 8%, while VCSH might rise only 3%. So which is the defensive play? Tricky stuff.
I've been digging into this a bit more and one that may interest you is Franklin Senior Loan ETF (FLBL). It's interest rate floats so it changes as interest rate change. And a whopping dividend, currently showing over 8%.
Returns over recent durations have been favorable, Expense ratio is a bit higher than some (0.45%), but the performance and dividend should make up for that, and that isn't that high anyways.
Floating rate sounds like a good strategy, esp. for those of us that don't pay a lot of attention to bond market.
Maybe that might work for you.
Senior Loan are junk rated loans, but they sit higher in the debt structure because they are typically secured by real estate, plant, equipment, or a stream of income.
I've been digging into this a bit more and one that may interest you is Franklin Senior Loan ETF (FLBL). It's interest rate floats so it changes as interest rate change. And a whopping dividend, currently showing over 8%.
Returns over recent durations have been favorable, Expense ratio is a bit higher than some (0.45%), but the performance and dividend should make up for that, and that isn't that high anyways.
Floating rate sounds like a good strategy, esp. for those of us that don't pay a lot of attention to bond market.
Maybe that might work for you.
Senior Loan are junk rated loans, but they sit higher in the debt structure because they are typically secured by real estate, plant, equipment, or a stream of income.
yeah...the idea of a floating rate bond is attractive, but they are low quality bonds and get trashed like junk bonds in a recession. They work when the economy is strong and rates are rising slowly, but if the economy turns down...you will probably be in trouble. Probably not something you want to buy and hold forever.
Senior Loan are junk rated loans, but they sit higher in the debt structure because they are typically secured by real estate, plant, equipment, or a stream of income.
yeah...the idea of a floating rate bond is attractive, but they are low quality bonds and get trashed like junk bonds in a recession. They work when the economy is strong and rates are rising slowly, but if the economy turns down...you will probably be in trouble. Probably not something you want to buy and hold forever.
Ah, you guys are no fun. That wasn't what I wanted to hear.
Okay the short term bond fund is probably the way to go. The Vanguard one. Just hard to get excited about.... even the iBonds were more appealing, while their rates were good.
yeah...the idea of a floating rate bond is attractive, but they are low quality bonds and get trashed like junk bonds in a recession. They work when the economy is strong and rates are rising slowly, but if the economy turns down...you will probably be in trouble. Probably not something you want to buy and hold forever.
Ah, you guys are no fun. That wasn't what I wanted to hear.
Okay the short term bond fund is probably the way to go. The Vanguard one. Just hard to get excited about.... even the iBonds were more appealing, while their rates were good.
As my boss used to say….whenever there’s a gimme there’s a gotcha.
AndreasStenoLarsen @AndreasSteno Lending may be declining in the West, but Chinese lending is picking up pace. Approaching 15% annual growth in credit. China will perform way better than the West from an economic perspective in H2-2023.
So this could have been a nice trade or a bit of a loss, depending on how good the trader's timing was.
Endless Capital @endless_frank Dan Niles on CNBC: “ We are short $AAPL ” He basically laid out my case explicitly. From $124 to $198 this year all multiple expansion while the business shrunk. $AAPL has a 35% drop in it. And if that’s coming the market has no chance to rally further. Time to sell all. 9:00 AM · Aug 4, 2023 · 230.4K Views
this one looks at how the leading economic indicators have been very negative and how in the past that predicted a recession.
Michael A. Arouet @MichaelAArouet I am too young to remember what happened in 1990, but I remember what happened in 2001, 2008 and 2020 👇 But of course this time it’s different. Chart @CavaggioniMario
2:10 AM · Jun 23, 2023 · 303.8K View
I am too young to remember what happened in 1990, but I remember what happened in 2001, 2008 and 2020 👇 But of course this time it’s different. Chart @CavaggioniMariopic.twitter.com/trQitUi5Os
What is everyone loading up on as we embark on the New Year?
I'm planning to buy more corporate bonds as some money starts to come available from other maturing fixed income investments. There will be a time to buy back into equities more aggressively, but for me that's not yet. I think US markets in particular are too expensive almost no matter how you look at things and it will be better (for me) to find a better entry point. And then it will be blue chip dividend payers, not high fliers like the magnificent seven and the like. Again, though, we are retired and this reflects our risk tolerance and long term objectives, not anyone else's.
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