Roosevelt Investments is now CI Roosevelt Private Wealth


Published on Nov. 15, 2018


In the News:

The Bloomberg Barclays US Aggregate Bond Index was down 2.2% in the 10-month period through October 31, 2018. However, a recent report from the Equity Compass Group at Stifel reminds us that sometimes what goes down must go up. Stifel Senior Portfolio Manager Timothy McCann makes two key points in the report: (1) “Over the last 27 years, bonds have produced a trailing 10-month return of -2.2%, or less, just 3% of the time.”, and (2) “During the 27 year time span when the trailing 10-month returns on bonds have been negative, the returns over the next 10 months have averaged 6.1%”.

The report goes on to suggest that there could be a silver lining when considering that the 10-year US Treasury yield is off its low and at its highest level since 2011, and that the Fed could raise rates at a slower pace than the market currently believes. Furthermore, bonds can still post positive returns in a rising rate environment, assuming rate increases are slow and measured.

Historically, 10-month periods of below average returns tend to lead to positive periods of above-average returns.

Barclays Aggregate Total Return Index

What we are thinking:

While this report might offer a feel good analysis of the fixed income market, at Roosevelt, we manage fixed income first as a solution for cash flow needs and secondarily for total return. As income investors, we appreciate that total return includes interest, capital gains, dividends and distributions that are realized over a certain time period. We believe that diversification across industries, maturities and issuers helps to provide consistent and sustainable levels of income, as well as a natural hedge to volatility. In our view, the higher the income in a rising rate environment, the better off your total return can be.

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