August 5, 2019 BARRON’S 35
INCOME INVESTING n By Lawrence C. Strauss
ThisTrendIsn’taFriend
Bondfundsarehot,buttheyield-hungryshouldbewary
MONEY HAS BEEN POURING INTO BOND
funds globally this year, but income in-
vestors should tread carefully.
Netbuyinginglobalbondfundsison
pace to reach a “staggering record” of
$455 billion in 2019, according to BofA
Merrill Lynch Global Research. That
compareswiththe$1.7trillionofinflows
overthepast10years.Theaccompanying
tablelistssixbondexchange-tradedfunds
with assets totaling about $170 billion.
Whilesomeofthebuyingcouldbere-
latedtoincomeinvestors,itlikelyisn’tfor
the yields they crave: The 10-year U.S.
Treasury note was recently at 2.06%,
down from 3.2% last November.
“Inacapital-plentifulworldwithlittle
risk premium across asset classes, real
yields are almost unbearably low,” ac-
cording to a note this past week by Be-
spoke Investment Group.
So, with rates low and the Federal
Reserve in cutting mode, what’s going
on?Giventhesignsofaglobaleconomic
slowdown,ahostofgeopoliticaltensions,
tradewars,andotherconcerns,itseems
the fixed-income fund flows are being
driven by haven-seeking investors.
“Even with low yields, bonds play a
reallyimportantroleinprovidingacush-
ion against shocks in other parts of the
market,” including stocks, says Mike
Pyle, global chief investment strategist
at the BlackRock Investment Institute.
Hewasreferringspecificallytosover-
eign bonds, which have minimal to no
creditriskbecausetheyarebackstopped
bytheirgovernments.Governmentbonds,
Pylesays,canhelphedgeagainstgeopo-
litical risk, a big selloff in equities, and
longer-termconcernssuchasinflation.He
says an allocation to Treasury inflation-
protectedsecurities,orTIPS,isoneway
to hedge against the latter risk.
Anexampleofthehedgingcapabilityof
governmentbonds,hesays,occurredafter
the United Kingdom’s vote to leave the
EuropeanUnioninJune2016.Treasuries
rallied following the vote. The 10-year
Treasury note’s yield, for example, went
from 1.56% in late June
of that year to 1.36% a
few weeks later. (Bond
yields and prices move
oppositely.)
Noteveryonethinksthatbondsmake
sense right now—even as a haven.
Thornburg Investment Management
Chief Executive Jason Brady, who over-
seesthefirm’sglobalfixed-incometeam,is
steeringawayfromthatassetclass.The
$14.3 billion Thornburg Investment In-
come Builder fund (ticker: TIBAX) had
justunder10%ofitsholdingsinbondsas
ofJune30.Mostofthoseholdingsarecor-
poratebonds,butBradydoesn’tseemany
opportunitiesingovernmentbondseither.
For income, Brady’s and his col-
leaguespreferU.S.andoverseasstocks
that pay dividends. With yields so low,
saysBrady,“anincomeinvestorlooking
further afield needs to be careful with
credit”asbondpricesappreciatewithout
sufficientyieldcompensation.Thefund’s
stockholdingsinclude JPMorganChase
(JPM),whichyields3.1%.Banksingen-
eral sport big dividends these days.
For income investors, those kinds of
stockscouldmakemoresensethanmost
bonds do.
Dividend
Payments,
page M35
Bond Voyage
Partly due to concerns about an economic slowdown, bond funds have been popular lately.
Assets YTD 1-Year 3-Year 12-Month
Fund / Ticker (bil) Return Return Return YieldiShares Core US Aggregate Bond ETF / AGG $64.4 6.00% 7.88% 2.05% 2.69%
Vanguard Total International Bond ETF / BNDX 42.2 7.37 9.13 3.47 2.90
iShares Short Treasury Bond ETF / SHV 24.6 1.46 2.37 1.32 2.11
iShares 1-3 Year Treasury Bond ETF / SHY 16.7 2.29 3.83 1.15 2.05
Vanguard Intermediate-Term Bond ETF / BIV 12.5 7.82 10.13 2.17 2.79
iShares US Treasury Bond ETF / GOVT 12.2 5.41 7.34 0.96 2.01
Morningstar defines a 12-month yield as the sum of a fund’s total trailing 12-month interest and dividend payments divided by
the last month’s ending share price (NAV) plus any capital gains distributed over the same period. Data as of July 29.
Source: MorningstarMailbag
“You or I will pass on PG&E, but there are deep-
pocketedinvestors who can evaluate and find
interest in a scrapheap.” B.J.KHALIFAH,onBarrons.com
SEND LETTERS TO:
[email protected]
publication,correspondencemustbearthe
writer’sname,address,andphonenumber.
Lettersaresubjecttoediting.
PG&E’s Risks vs. Rewards
To the Editor:
Thisisawell-written,informativearticle
(“California Power Play,” Cover Story,
July26).AlexandraScaggsistobecom-
mended.Shequantifiestherisksversus
rewards and establishes a timeline that
isrealistic.YouorIwillpassonPG&E,
but there are deep-pocketed investors
who can evaluate and find interest in a
scrapheap. California has had droughts
and wildfires for many hundreds of
years.Peoplewhobuildindangerzones
assumeprevalentrisk.Climatechangeis
not the critical factor here. PG&E can
remain an irrational investment longer
that most people can remain solvent.
B.J.KHALIFAH
On Barrons.com
Deflating the Dollar
To the Editor:
In the July 26 issue, both Randall W.
Forsyth (Up & Down Wall Street) and
JackHough(Streetwise)touchedonthe
impact that the high value of the U.S.
dollarishavingontheeconomy.Clearly,
exportersandmultinationalsarefeeling
thepain,andithastobepartoftherea-
sonthatgross-domestic-productgrowth
slowed in the second quarter.
Itwouldbeniceif,foronce,theTrump
administration showed a little teamwork
byallowingtheTreasuryDepartmentto
workinacarefullycoordinatedwaywith
theFederalReservetotakealittleairout
thedollar.Thiscouldbebeneficialonmul-
tiple levels. Of course, it would give
China’s President Xi Jinping an opening
toaccusetheU.S.ofcurrencymanipula-
tion, but Xi whiz, what’s good for the
goose is good for the gander.
ARTHURM.SHATZ
Oakland Gardens, N.Y.
The Future of Financial Advice
To the Editor:
Whetherfinancialadvisorswanttoadmit
it or not, robo-advisors are an integral
partofthewealthmanagementindustry’s
evolution (“Robo-Advisors Are Still Hot.
Here’s How Their Portfolios Are Re-
sponding,” July 26). Just like document-
generationandtax-preparationsoftware
are crucial to any modern legal or ac-
countingpractice,robotechnologywillbe-
come essential for any modern financial-
advisory business. This eventuality will
requirefinancialadvisorstoprovidemore
comprehensiveadvicebeyondjustinvest-
ments.Conversely,roboswillneedtoem-
bracethefactthattheirserviceisacom-
modity. This means fee compression and
developingpartnershipswithfinancialad-
visors to attract wealthier clients.
The future of advice is the symbiotic
relationshipbetweenrobotsandhumans.
The firms that embrace this will thrive,
while the organizations that resist will
become extinct.
JONATHANI.SHENKMAN
West Hempstead, N.Y.
Vintage Capital Management has dis-
closed a stake in Red Robin Gourmet
Burgers. The company was incorrectly
called Round Robin Gourmet Burgers in
last week’s 13D Filings column.
Corrections & Amplifications