|
23-Oct-09
 |
Are Junk Bonds Getting Too Much Credit?
In depth analysis of whether professional investors are putting too much faith in a high-yield corporate bond recovery.
|
06-Oct-09
|
The Appeal of Build America Bonds
In an effort to help stimulate the economy -- and with a tip of the hat to municipalities that implied they might know best how to address their fiscal needs and to keep people working -- the United States government announced a new subsidy program to help states lower their borrowing costs. The program is popularly known as Build America Bonds (BABs).
|
11-Aug-09
|
Long-Term Corporate Spreads
Corporate bonds have been on a tear this year. Much of the rally has been built on the back of dramatically low prices that were reached during the fall of 2008 when participants went running for the exits on the thought that the United States might be headed for the next Great Depression (or worse, if that is possible).
|
17-Dec-10
|
Seeking Yield: How the Sovereign Market Got Its Sanity Back
For a time, the market seemed to forget one of life's great lessons: you cannot forget the fundamentals. From little league baseball, to basic math, to driving a car, disregarding the fundamentals more than likely leads to mistakes and erratic performance. With the introduction of the euro, the market, until recently, appeared to believe that there was an unseen emperor in Europe -- one that implicitly guaranteed sovereign debt. As such, yields of the eurozone members converged to the point where the various debt issues essentially traded as if they were basically the same.
|
08-Nov-10
|
Seeking Yield: All Is Well. Nothing to See Here.
"It could have been worse" appears to have become the post-recession victory cry and that mentality is contributing to what we believe is a sense of complacency in the fixed income market with regards to corporate debt. We would agree that the short-term default risks have been reduced dramatically.
However, what defines short-term is debatable and what has supported this yield recovery is not guaranteed to continue in the coming years. While high-yield corporate debt may perform well in the coming days and months, we believe it is prudent for managers to start thinking about their allocation choices.
|
14-Oct-10
|
Seeking Yield: Munis - Real Value or Capitulation?
In the current environment, fixed-income purchases can often feel like an exercise in futility for relative-value buyers. Certainly, what qualifies as and, just as importantly, what defines a relative-value investment changes over time. In the not too distant past, munis were considered reasonably valued when their yields were around 85% of Treasury yields.
As Treasury yields have moved ever lower, that relationship has broken down. Between June 22 and Oct. 1, the ratio exceeded 100% 31 times while falling below 96% only seven times. If yields are indeed converging, it is possible that munis have long been too cheap and are still cheaper than they should be. Indeed, investors might be hard pressed to find a better value.
|
23-Sep-10
|
Seeking Yield through Dividends
The U.S. stock market could be facing a low-return environment for some time as the legacy of the Great Recession is felt through higher tax rates and a protracted recovery in the labor and housing markets. Nonetheless, a dividend-based approach has merit at this time given that the corporate sector has the means to pay increasing dividends and given that shareholders will be increasing their demands for dividend income.
|
07-Sep-10
|
Seeking Yield: One Man's Trash Is Another Man's Treasury
The concept of relative value should be reformulated in the aftermath of the Great Financial Crisis. In this low-yielding, uncertain environment, where spreads are quickly disappearing and corporate balance sheets look healthier than most sovereigns, considering the relative value of historically non-comparable credits is prudent. For the foreseeable future, participants should be willing to cast aside formerly reliable starting points and paradigms in order to unlock real and measurable relative value opportunities not just within, but across, fixed-income asset classes.
|
01-Sep-10
|
Legally Avoiding Taxes: MLP Closed-End Funds
As a follow-up to our July 23, 2010, article "Legally Avoiding Taxes," we take a brief look at MLP closed-end funds as a way to gain exposure to MLPs in retirement accounts without raising tax issues.
|
23-Jul-10
|
Seeking Yield: Legally Avoiding Taxes
As income and investment taxes are all but assured to go up in the near future (at least for those in the top brackets), money managers will want to take a hard look at tax-advantaged vehicles. Investments to consider for taxable accounts include general obligations bonds from out-of-favor states, certain municipal revenue bonds, as well as Master Limited Partnerships. Higher-yielding (but not necessarily high-yield) bonds, including Build America Bonds (BABS), and stocks with higher dividend yields, have a place in tax-exempt accounts. For such accounts, we take a look at the dividend yields from a few companies, several corporate bond offerings, as well as some BABS issues. We note that while interest rates may move sideways over the near term, there is substantial interest-rate risk over the longer term.
|
11-Jun-10
|
Seeking Yield: The Convergence of Yields
The now casual comparison of the safety and/or relative value of sovereign debt to corporate bonds may now expand to U.S. municipal debt. Not only is the comparison unusual by historical standards, but it also reflects a trend that we believe has real staying power -- the pursuit of the best relative-value yield regardless of the debtor. We believe state-backed debt has been unfairly categorized in the press as increasingly risky. This has created some solid relative value plays across the municipal landscape.
|
18-Mar-10
|
Seeking Yield: A Return to Dividends
Our expectation is that the S&P 500 will achieve a low single-digit to low double-digit percentage return in 2010. Many share those modest expectations. Therefore, we expect a dividend-based investment strategy to regain appeal as equity money managers seek out steady income streams in order to provide a positive return to counterbalance modest, or even nonexistent, price appreciation this year.
|
25-Jan-10
|
Seeking Yield -- Investment Premise
When allocating funds to fixed-income assets, the goal is to minimize the risk associated with the return that is being sought. Ultimately, managers are "seeking yield" for the end user regardless of a specific risk profile. This goal does not change in the wake of evolving micro and/or macro factors. What does change is the pursuit of yield in the face of those evolving factors, which can range from geopolitical risk to demographic patterns to economic cycles. It is this change in demand that impacts yields and allocation strategies. The ongoing challenge is to be ahead of those shifts in demand and to unearth reallocation opportunities before they become commonplace. In "Seeking Yield," that is exactly what we aim to do for money managers.
|
04-Oct-11
|
Seeking Yield: A Broader Dividend Focus
Since March 18, 2010, we have been highlighting the appeal of dividend-paying U.S. stocks as a long-term investment. We refined that view in mid-2010, placing a narrowed emphasis on blue-chip multinationals. Through Sep. 30, 2011, the S&P 500 Dividend Aristocrats index has returned 2.4%. In that same period, the S&P 500 is down 3.0%.
We continue to see added investment appeal in dividend-paying U.S. equities, but we are broadening our focus today. As such, we ran screens to identify companies in each of the major U.S. indices that pay dividends, have an established market position and a strong financial standing.
|
16-Sep-11
|
Seeking Yield: The "Gold" That Missed the Rally
Although the financial sector is still struggling to recover from the economic turmoil that began in 2008, we believe that Goldman Sachs can rebound fairly quickly because its issues are tied more to execution and perception than they are to structural challenges. While it may take a while for Goldman to rebuild its reputation, we believe the investment bank will continue to attract and retain some of the best talent available given the historical cachet of its brand. This should allow Goldman to generate the income that is necessary to make good on its bonds, which our analysis leads us to believe are underappreciated.
|
07-Sep-11
|
Seeking Yield: A Broader Perspective on Corporate Bonds
Investing often demands looking at data from different perspectives. Using the same base data, a single snapshot can provide what appears to be a clear answer. Put two or more snapshots together -- even if they are derived from identical data -- and the perspective can change.
Something that looks like a good relative value when judged by one measurement (or more) may ultimately be a poor investment. In this note, we provide data-driven insight that clarifies that important point for fixed-income investors.
|
09-Aug-11
|
Seeking Yield: A Corporate Parachute
High-grade corporate bonds continue to offer a compelling value in the context of net debt and their spread to Treasuries. The repayment of debt comes down to two things: ability and willingness. Most entities, corporate or sovereign, have the willingness. The question is, do they have the ability?
|
21-Jun-11
|
Seeking Yield: Munis Not Quite Dead Yet
The municipal market is alive and kicking after being left for dead by some participants starting in December 2010. In January, we highlighted what we believed "to be some extreme disparities between U.S. Treasury, corporate and muni yields." Since then, the muni TEYs have outperformed by a nice margin. While munis are not the bargains they once were, the spread to the 30-year Treasury may still be compelling to participants looking to put money to work at the long end of curve.
|
01-Jun-11
|
Seeking Yield: Sell Low, If They Will Buy High
A funny thing happened on the way to higher Treasury yields: they never went higher... at least not yet. With the 10-year Treasury and corporate spreads holding at relatively low yields, the current situation is yet another opportunity for corporations to improve their financial position. Many are doing just that, but is the rush by high-grade institutions to issue debt a bottoming indicator for Treasury yields?
We answer that question in this note and present a debt-driven rationale for why U.S.-based, multinational companies remain a solid investment option.
|
12-May-11
|
Seeking Yield: It's All Relative
One of our main tenets with regard to fixed income is to seek out relative value plays on a consistent basis. Selection is more important than ever as the days of throwing darts at the fixed-income dartboard and hitting a winner are all but over. Not only is the easy money gone, the difficult money is even getting harder to find.
Our analysis leads us to believe that managers should keep overall duration below their historic targets and that many "second-tier" credits offer the best risk/reward within the corporate bond landscape.
|
05-May-11
|
So the Bond Guy Says to the Equity Guy...
We appear to be entering another period in which asset prices are not lining up with each other. All roads point to equities right now and specifically to U.S. blue chips with multi-national exposure, as they have more appealing total return potential than many bonds do -- government-issued or otherwise. Yes, this is a "bond guy" extolling the virtues of equities.
|
30-Mar-11
|
Seeking Yield: Market Size Matters
U.S. Treasuries as a whole are overvalued and have limited appeal beyond safety trades fueled by geopolitical risk and/or European debt issues. The idea of selling the U.S. to buy something else outside the U.S., however, is far easier said than done considering the U.S. accounts for nearly 34% of the world's combined value of equity and par-value debt.
There are other options like the BRIC countries, but even those options are limited seeing how their slice of the world's equity and par-value debt is just 9.6% combined. Translation: good luck getting one's hands on the BRIC securities all others seem to covet at reasonable prices.
U.S. stocks continue to offer a relative value opportunity. U.S. Treasuries do not.
The silver lining for Treasuries is that the dominant position U.S. securities hold in the market should serve to mitigate the downside risk in Treasuries by capping how high yields go. In brief, size matters in a big way for the U.S. market. We examine why that fine point will have to matter, too, for fixed-income managers trying to allocate money outside the U.S. Treasury market.
|
15-Mar-11
|
Seeking Yield: Bank on Increasing Dividends
With macro uncertainty still high and return prospects in question, the merits of a dividend-based investment strategy remain as strong today as they did a year ago when we discussed the advantages of owning high-yielding stocks to boost total return potential in a low-yielding environment.
With companies seemingly ready, willing, and able to increase dividend payouts today, we revisited our dividend scans to uncover the best and brightest prospects. Not surprisingly, the financials, and specifically the banks, are featured prominently on the prospect list.
|
18-Feb-11
|
Seeking Yield: A Perspective on Relative Value
We believe the bond market is at a turning point. Just as the flight-to-safety trade and government support changed the market from late 2008 to late 2010, the "flight-to-risk" -- or simply a flight from Treasuries -- has the potential to push the market decisively in the opposite direction. However, some constants will remain -- the ideas of judging relative value and the ongoing trend of converging yields.
|
18-May-12
|
Seeking Yield: Groundhog Day
As the 10-year yield has continued to drop, investors have sought out alternative investments, which in turn has driven down their yields as well. The result is that there has been a notable reduction in relative-value plays that pass the sniff test. Frankly, we find it difficult to turn away from the value that stocks offer at this time relative to USTs and investment-grade corporate bonds. In other words, we hold the same view today we held a year ago.
|
29-Mar-12
|
Seeking Yield: Earnings Up, Dividend Payout Ratios Down
From our vantage point, we believe there is a risk of complacency in the market over the near term as earning growth slows and investors lock in gains after a tremendous first quarter.
For those concerned that a market correction could occur, high-quality, high-dividend stocks provide a conservative alternative. We adjusted our proprietary dividend model to screen for companies that have liquid balance sheets and low dividend payout ratios. These companies have the balance sheets to sustain any correction, and to potentially increase payout ratios.
|
24-Feb-12
|
Seeking Yield: Can't We Have Both?
Even with recent inflows, both investment-grade and high-yield corporate bonds still have their merits. However, there is reason for caution as the strong performance in both increases allocation risks as U.S. economic data continue to improve.
For those not interested in trying to time an exit from longer-maturity bonds, we believe it is prudent to stay with bonds that have a maximum maturity of around seven years. Two that stand out to us are Bunge (+330) and Lorillard (+290) – both rated BBB- by S&P.
In addition, we evaluated the possible near-term funding needs of some high-yield companies. We looked at the recent trends of their financing costs to determine who might be in a better position to continue to borrow/refinance in a rising interest rate environment. Higher-yielding (but not necessarily high-yield rated) bonds that we currently prefer on a relative-value basis include Goldman Sachs, Whirlpool, DISH Network, Ford Motor and Hanesbrands.
|
12-Jan-12
|
Seeking Yield: Why Does Everyone Hate the French?
France's 10-year debt is yielding well above the one- or two-notch downgrade that is widely expected to materialize. In fact, one could argue that it is being discounted from AAA down to A or lower. While we do not disagree with the idea that France should be discounted, the market may have overreached the bounds of sensibility at this point.
|
|
