October 21, 2019 BARRON’S 35
Income Approach
To the Editor:
Finding income ideas in this low-rate
environment is no easy feat (“How to
Play Upside-Down Interest Rates,”
Cover Story, Oct. 11).
However, before purchasing lower-
quality investments or extending bond
maturity beyond what is appropriate,
prudent investors should be reminded of
the potential consequences. These strate-
gies can cause stock-like volatility in the
fixed-income portion of one’s portfolio,
which is generally viewed as more con-
servative.
The last thing any investor wants is to
experience a drop in his or her invest-
ments that is significantly more than they
expected.
One solution for yield-starved inves-
tors is a total-return approach. Instead of
just collecting income from stock divi-
dends and bond interest, they should also
sell some appreciated securities to sup-
plement the income stream with capital
gains. Doing so will allow investors to
maintain their desired level of cash flow
Mailbag
Mailbag
“Ipaytoinsuremyhouse,car,andlife.Whyshouldn’tIpay
toguaranteemypurchasingpower?Negativerealyields
onsafeassetsarenormal.” PAULO’BRIEN, On Barrons.com
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without taking on unnecessary risk.
JONATHANI.SHENKMAN
West Hempstead, N.Y.
To the Editor:
Andrew Bary mentions the Vanguard Hi-
Yield Corporate mutual fund. It is a “defen-
sive” approach to high-yield investing, cur-
rently paying 4.7%, and I am long in it. As
with most Vanguard offerings, it’s conserva-
tive, and fees are very low. This fund has
obviously attracted a lot of attention lately,
evidenced by the fact that the net asset
value has risen to record levels since 2009.
RONRAMSAY
Palmetto, Fla.
Under the Mattress
To the Editor:
Matthew C. Klein posits that “to an in-
vestor, there is no difference between a
bond yielding minus 1% in a world of 1%
inflation and a bond yielding 5% in a
world of 7% inflation” (“The Price of
Earnings Glut—Negative Rates,” The
Economy, Oct. 11). That’s hardly true for
this investor. I would prefer the former,
since I can keep my money under the
proverbial mattress and lose only 1% in
real terms, versus 2% with the latter.
HARRYKIRSCH
Principal Marble Capital
San Francisco
To the Editor:
Historically, government bonds have not
been the safe asset. Gold was. And gold
has always had a small negative real yield
once storage and protection costs are con-
sidered. Why should a safe asset deliver a
positive real return? I pay to insure my
house, car, and life. Why shouldn’t I pay to
guarantee my purchasing power? Nega-
tive real yields on safe assets are normal.
The high real yields of the past three
decades were the anomaly.
PAULO’BRIEN
On Barrons.com
Given Enough Time
To the Editor:
Randall W. Forsyth distorts Murphy’s cele-
brated law when he writes, “Whatever can
go wrong, will” (”Sometimes Things Can Go
Right—and a Lot Did for the Stock Market
Last Week,” Up & Down Wall Street, Oct.
11). The full, correct, and much subtler
statement of Murphy’s Law is, “Whatever
can go wrong, will go wrong, givenenough
time. ” It is with enough time that struc-
tural flaws in a system will necessarily
emerge, and that financial vulnerabilities
will burst from potential dangers to an ac-
tual bust. As properly stated, Murphy’s
Law will doubtless prevail once again in
finance, as in other domains.
ALEXJ.POLLOCK
R Street Institute
Washington, D.C.
Regional Banks
To the Editor:
I agree that lower interest rates may put
pressure on financials’ net interest mar-
gins, but would argue that many regional
banks have hedged interest-rate risk and
are benefiting from a strong consumer
sector, modest increases in commercial
and industrial lending, and pristine loan
portfolios (“5 Dividend Stocks With Safe
and Growing Payouts When Bonds Can’t
Do the Trick,” Income Investing, Oct. 11).
Just as important when considering
the safety of the dividend is that the
dividend-to-earnings payout ratio is in
the range of only 35%. Citizens Financial
Group, PNC Financial Services Group,
BB&T, and a host of others have dividend
yields of 3.25% to 4.25%.
JOHNKENNEDY
On Barrons.com
GE: A Speculative Stock
To the Editor:
I agree that [General Electric’s pension
decision] puts points on the board for
CEO Larry Culp’s turnaround (“Pensions
Really Matter for Stocks. Here’s What
Investors Need to Know After GE’s
Freeze,” The Trader, Oct. 11). However,
if it leads to discontent and cynicism in
the workforce, that could cut against
goals. I continue to think that GE is a
speculative stock, though this is probably
the strongest indication yet that the bal-
ance sheet may be righted.
CHRISTOPHERPHELPS
On Barrons.com
Stories Behind the Stories
The Readback podcast takes you
insidethe Barron’s newsroomand
our stories. In the latest episode,
Matthew C. Klein joins host Alex
Eule to explain Europe’s negative
interest rates.
Signuptodaywhereveryoulisten
to your podcasts or head to
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information.
Corrections&Amplifications
“GE and 4 More Favorite Stocks From a
Fan of Disruption” (Interview, Oct. 11) con-
tained a number of errors.David Giroux,
manager of the T. Rowe Price Capital Appre-
ciation fund, met with people who had worked
with Sen. Elizabeth Warren in the past, not
those currently working with her. Giroux said
that Amazon.com and Netflix have changed
cable networks’ businesses, not that stream-
ing in general had. Utilities are a large over-
weight, relative to the benchmark for the fund,
not its largest absolute position.
General Electric’s power business,
Giroux believes, is best described as 15%
to 20% of the company’s enterprise value,
rather than 10% to 15% of its portfolio.
Giroux expects high-single digit cash-flow
growth from GE’s aerospace business, not
mid-single digit growth. Fortive has bought
businesses with $1.7 billion in revenue, not
assets. And Giroux’s fund reduced its
fixed-income exposure from 30% last year,
not 35% to 36%.The exposure is now 25%,
not 24%.
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