Company emphasizes the role of bonds in balancing investment portfolios during periods of market volatility
October 10, 2012 – Bloomberg
Considering the lasting impact of the 2008 financial crisis investor attitudes have shifted to adapting fast to market volatility. This in turn has created the tendency of haste in interpreting macroeconomic information, a fact that contributes itself to market volatility when investors lack assurance in market instruments and proper guidance.
Similarly, clients with SBAV Group have expressed concerns regarding the performance of the bond market and their options in terms of fixed income investing. As such, SBAV Group seeks to address these concerns and bring attention to bond investment themes that investors should consider. This comes at a time when investors around the world regularly consider that their only options are to lower their expectations or to face more risk.
“The present day market environment, consisting of low interest and high market volatility, can seem disheartening to some clients when they don’t fully comprehend how to operate through it,” commented Osamu Ishihara, Chief Investment Officer at SBAV Group. “Bonds can represent a significant advantage in one’s investment portfolio, and as such it is important not to react at a whim when encountering slight market shifts and make deliberate though-out decisions.”
By taking into account the most recent events in the current bond market, SBAV Group provides perspective on a four topics of interest for fixed income investors, amongst which:
- Low interest rates – Even in the midst of a market environment characterized by low interest rates, bonds are a good instrument for fund preservation and offer diversification. Considering this, clients owning long-term bonds that have risen in value could make profits on those instruments to mitigate duration risk. Mr. Ishihara mentions that bond ladders are likewise preferable options created to generate a steady flow of income and mitigate interest rate risk.
- Cost of cash – Being invested in cash for timing purposes faces its own particular levels of risk, such as relinquishing profit opportunities and losing the capacity to gain compounded returns. Mr. Ishihara believes that remaining invested with the right instruments is far more important than the timing of an investment.
- Role of municipal bonds – While the municipal bond market will face obstacles due to the slow recovery of the economy and increased public service expenditures for another 10 years at least, municipal bonds remain a relatively enticing option in SVAB Group’s view. According to Mr. Ishihara, when attentively selected municipal bonds can yield better profits compared to treasuries, could hold tax advantages and can still provide a stable flow of income.
- High yield means higher risk – With treasury yields near historic lows, clients that aim to gain income could be enticed to look for yields in sectors of the bond market that are considered to carry more risk. Mr. Ishihara advises the vast majority of clients to cap the amount of high impact investments to a maximum of 20 per cent of an entire fixed income portfolio.
“Either as individual securities or as part of a fund, bonds can stabilize a portfolio while encountering market volatility,” said Harvey Grader, Research Director at SBAV Group. “Our clients require assistance in making sense of their bond investments through multiple market cycles, and we are here to see them achieve their ambitions and maintain bonds as an attractive market instrument”.
About SBAV Group
At SBAV Group we seek to provide the best investment performance and asset management experience. Since our establishment we have fruitfully collaborated with our diversified base of clients creating lasting business relationships built upon a foundation confidence, respect and professional integrity.
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