Defensive portfolio my derrière | General financial discussion | Discussion forum

It is all relative. A temporary decline of -15% is twice as good as -30%. Unless you want to cocoon yourself in simply HISAs and GICs, you will have periods of negative returns.

What you describe doesn't make sense.

US and Canadian bond yields are down from a year ago, all the way out to 30 years bonds. How did anyone holding Canadian government bonds lose money? Bond prices go up when interest rates drop.

Similar with corporate debt. Unless there is a default, there isn't much significance to the daily price fluctuations of a corporate bond. What matters are the interest payments and the payback at maturity.

Are you really investing in bonds or are you really speculating in bonds, like a Bill Gross?

Like I said, that's just the current market value of the corporate bonds. Does one really believe several months of reduced economic activity would torpedo those companies?

Maybe people should start marking-to-market the value of their GIC's monthly as interest rate fluctuate instead of believing in their artificial price stability!

AltaRed said
It is all relative. A temporary decline of -15% is twice as good as -30%. Unless you want to cocoon yourself in simply HISAs and GICs, you will have periods of negative returns.  

+1 to this. picassocat, defensive portfolio doesn't mean lossless portfolio. It sounds like your portfolio has gone down less than a standard balanced fund portfolio, so, in my view, it sounds like it's doing exactly what you wanted to do. Good work.

Remember, corporate bonds, though not equities, have other risks besides interest rate risk. They have market, liquidity, potentially currency, and credit risk. On the latter, remember that investment grade includes those on the border of investment and non-investment grades. In a market downturn, there will be downgrades, and the fund may be forced to either (a) alter its investment objectives (usually requiring a unitholder vote) or (b) sell its previously investment grade bonds, crystalizing a loss for unitholders. Moreover, liquidity risk is, I think, an understated risk, particularly in bonds. As the credit and other markets seize up, price discovery of bonds becomes even more opaque. There will be wide bid/ask spreads so, when they need to sell, which could be just to cover redemptions, they may be forced to sell the bond well below its fair value.

In my view, you should either (a) keep your portfolio and ride it out, (b) rebalance into a balanced or balanced conservative fund portfolio, or (c) research the low volatility premium anomaly that sees low volatility funds outperform, despite academic evidence to the contrary, comparable balanced funds. They'll still go down, too, but not by as much.

Cheers,
Doug

picassocat said

savemoresaveoften said
As for bounce back candidates, just have to own cad banks and utilities. 

savemoresaveoften you may want to read this article before you buy-in even more into Canadian banks.

https://www.bnnbloomberg.ca/think-twice-before-increasing-exposure-to-canadian-banks-analysts-warn-1.1408141  

One, Veritas is a noted bearish analyst firm. Always has been. Two, there will always be those with bearish and bullish views on companies and whole industries, including the Canadian banks—after all, that's what makes a market.

If your time horizon is only a year or two, then I would say you'd probably want to avoid buying any Canadian banks (arguably, any stocks, period). But, if you have a time horizon of at least five years, the probability of your portfolio of Canadian bank common shares increasing between 30-100% over the next 5+ years has increased dramatically. They are trading at, or near, arguably stupid cheap levels. Their revenues could decline by 50% near-term, without any expense reductions, and they could still maintain their dividend. The longer this goes on, they will increase their expense reductions by increasing the number of branches temporarily closed and modifying their hours at open branches. Longer term, they may actually accelerate the annual rate by which they close physical branches permanently, particularly those which see most of their traffic volumes for in-branch cash services. So, longer term, despite all their cost cutting, this can motivate them to basically "double down" on the cost cuts and drive profit growth.

Cheers,
Doug

Full and Fair Disclosure: Prior to this week, I owned only CIBC, TD, Scotiabank, and HSBC. From this week forward, I own all of those, and now own Canadian Western Bank and Genworth MI Canada* (*Not a bank, but the largest private sector mortgage insurer). I would be careful with Equitable Group and Home Capital Group; they are higher beta bank stocks and rely, even moreso, on net interest income, which will be compressed significantly as rates drop and mortgage volume growth slows. Look at Equitable's stock price over the last two weeks; it's fallen from $105-110 per share to the low $50s. It will probably whipsaw around into the $60s, but also to the $30s-40s. You really want to see it base for a long term and then start to break out from recent highs before you step in, I think. I'm also a bit "gun shy" on smaller publicly-traded banks, having lost a few thousand on Street Capital Group (now part of RFA).

The BMO Long-Term US Treasury Bond Index ETF (Bloomberg quote: ZTL:CN) is supposed to track the performance of the Bloomberg Barclays U.S. Long Treasury Bond Index. That index is for US government US$-denominated bonds 10+ years to maturity.

People putting money into 10+ year bonds really should have a time horizon significantly longer than one month.

Year-to-date return is around +25%! One year return is around +37%! Lots of happy campers who had a longer time horizon.

picassocat said

savemoresaveoften said
As for bounce back candidates, just have to own cad banks and utilities. 

savemoresaveoften you may want to read this article before you buy-in even more into Canadian banks.

https://www.bnnbloomberg.ca/think-twice-before-increasing-exposure-to-canadian-banks-analysts-warn-1.1408141  

Yes I read that article this morning. It is pretty useless as it does not offer anything insightful in my mind ("tell me something I dont know")

One thing I learned over the years is there will always be people with polar difference opinions on all sorts of things, investments included. Its more important to formulate decision making and action based on the information presented, not on reporters or even analysts recommendation. Analysts are the most shameless bunch and gets paid no matter how shitty their calls or recommendations are.

picassocat said

I definitely don't disagree with you; we all have the same numbers but different direction or philosophy. Having a good education doesn’t mean you are smart.  

Not necessarily defending equity analysts, but, go figure, long-time Canadian bank equity analyst for National Bank Financial's Equity Research team, Peter Routledge, was recently named President & CEO of the Canada Deposit Insurance Corporation.

I wonder if Barclays Canada equity research analyst John Aiken will be named the next Commissioner of the Financial Consumer Agency of Canada... 😉

Cheers,
Doug