Asset Allocation

Revisiting International Diversification

2015-12-29T22:38:40+00:00 Dec 2015|Asset Allocation|

International diversification has come under attack over the last couple of years as both international developed and emerging markets have underperformed U.S. stocks. Figure 1 illustrates this underperformance by looking at the growth of $1,000 invested in U.S. and international developed market stocks over the period from January 2008 through November of this year.

Smart Beta Can Be Smart But Is Not New

2015-11-13T03:49:11+00:00 Mar 2014|Asset Allocation, Equities|

I held off writing about smart beta strategies as long as I could. The world, after all, is awash in such pieces. I couldn’t ignore it any longer, though, because virtually every piece I’ve read that’s critical of smart beta misses one fundamental point: The term “smart beta” may be new (and has certainly been effective from a marketing perspective) but the underlying strategies themselves are not.

Do Corporate Bonds Add Value in Portfolios?

2016-01-11T16:41:34+00:00 Mar 2014|Asset Allocation, Fixed Income|

I frequently get asked about the merits of corporate bonds, both investment-grade (IG) and high-yield (HY), relative to government and municipal bonds. I don’t believe the risk-return profile for long-term investors (particularly taxable individual investors) is improved by owning IG or HY corporate bonds compared with simply owning a diversified portfolio of stocks and high-quality government bonds.

How to Make Your Own High-Yield Corporate Bond Fund

2016-01-12T14:50:45+00:00 Jun 2013|Alternative Investments, Asset Allocation, Equities, Fixed Income, Mutual Funds|

With interest rates at low levels for a number of years now, many investors have moved some portion of their high-quality bond portfolios to higher-yielding investments like high-yield corporate bonds. I’ve long argued that there’s not much these strategies add relative to a traditional stock fund and high-quality bond strategy. Further, the traditional stock fund and high-quality bond allocation strategy tends to have lower costs and be more tax efficient. This is a bit of a qualitative argument though, and I wanted to illustrate the point quantitatively.

The Risks of Yield Seeking Strategies

2016-01-12T14:48:21+00:00 Jun 2012|Alternative Investments, Asset Allocation, Fixed Income|

Over the past couple of weeks I’ve focused on high-yield corporate bonds, but three other yield-oriented investments I frequently get asked about are high-dividend stocks, preferred stocks and oil-and-gas master limited partnerships (MLPs). In the past couple of years, I’ve found that most investors who ask about these strategies are contemplating using them in place of high-quality fixed income because “fixed income rates are low.”

High-Yield Corporate Bonds

2016-01-12T14:39:14+00:00 May 2012|Asset Allocation, Fixed Income|

I got an e-mail this past week noting that Vanguard would be closing its high-yield corporate bond fund to new investors “effectively immediately” and that the fund had received “approximately $2 billion” of flows over the past six months. While growth of Vanguard’s assets under management is almost always a good thing, a fund shuttering its doors to new flows makes one wonder just how frothy credit markets have become. Let’s take a step back, though, and look at high-yield fixed income as an asset class. I find that many investors simply don’t understand what returns high-yield bonds have historically generated or just how closely correlated they are with the equity markets.