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CIP Quips

Passive is Passive

Whats in the news:

Dennis Gartman, editor and publisher of the well-respected and widely circulated industry newsletter, The Gartman Letter, recently gave an interview discussing his outlook for bonds, interest rates and what bothers him in the market. 

When asked whether investors should even bother owning bonds in the current market environment, he responded with, “anything over, let's say, 10-year Treasury’s—the answer's probably no. I think the propensity for interest rates to be higher—not dramatically so, but higher over the course of the next six months to two years—is very strong. I think rates will be up 25 to 50 basis points from here…. The impact of a 25- to 50-basis-point rally in the long end is going to be detrimental, but not materially so. So owning a shorter-term security is probably fine.”

Gartman went on to discuss a topic that he and his peer group have found particular confusing and concerning: passive investments. “What bothers me, and what bothers most pros, is that, with all the money that has flowed into passive investment, everybody in the public seems to think that when prices go down 5%, they'll be spared. No, they won't…Passive is passive….The rush to passive has now become almost bubble-like in material. And bubbles almost always burst. And when they do, they burst quickly and they burst violently. I think people should take a look very seriously at reducing their exposure to passive investments.”

Effective Federal Funds Rate
(7/1954 – 7/2017)


What are we thinking?

Gartman’s thoughts on interest rates and owning long term debt are similar to ours. In our search for enhanced current income, we believe the shorter duration structure of our intermediate investment grade portfolio should benefit from a rising rate environment. While we believe that attempting to forecast rates is a futile exercise, rates will rise eventually. As active managers, we seek to provide value by remaining cognizant of current trends, making reasonable and informed expectations of Fed announcements, and diversifying in preparation for interest rates to trend higher. 


Additional Source: wealthmanagement.com



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Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.


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