Bond Thoughts - V

March 23, 2018
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One of the latest Wall Street gimmicks was that unconstrained, flexible bond funds would allow you to maintain exposure to bonds, provided diversification with bond-like returns without the worry of higher interest rates.

Exactly – too good to be true. But sounds great in theory!

During a period of market stress from 11/03/2015 to 02/11/2016, Morningstar examined returns and correlations across several asset classes:


  • S&P 500 = -13.1%
  • Bloomberg Barclays High Yield Index = -9.8%
  • Morningstar Multisector Bond Category = -4.6%
  • Bloomberg Barclays US Aggregate Index = +1.8%


  • To the S&P 500
  • Bloomberg Barclays High Yield Index = 0.66
  • Morningstar Multisector Bond Category = 0.62
  • Bloomberg Barclays US Aggregate Index = -0.20

What the above information shows is that these multisector, flexible bond strategies don’t necessarily have bond-like returns during market turmoil and they have a fairly high correlation to movements in the stock market.

Don’t get too cute with bonds. When you need divesification you want your bonds to be bonds and not some quasi-bond/stock hybrid mix.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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