Investment Insights are written by Angeles' CIO Michael Rosen
Michael has more than 30 years experience as an institutional portfolio manager, investment strategist, trader and academic.
THE PRESENT IS THE FUTURE (AT LEAST IN BOND LAND)Published: 10-27-2014
In our long-term assumptions, we generally assume that the total return in fixed income is pretty close to its starting yield. That’s because a bond’s total return is a function of two variables: yield and re-investment yield. As yields move up and down, bond prices move inversely, down and up, but the re-investment rate moves positively with yields. In the short-term, changes in prices have a large impact on total return, but given enough time, the re-investment yield (almost) completely offsets the price/yield function.
The table below (courtesy Morgan Stanley), shows the effect of interest rates rising from 3% to 8% at 50 basis points a year over 10 years. The total return over this decade works out mathematically to 3%, (not) coincidentally the starting yield.
There are risks to owning bonds, primarily higher inflation, and to a lesser extent default risk. But the laws of mathematics make us highly confident that the long-term nominal return for bond investors will be right around today’s yield.
PRINT THIS ARTICLE
I'm Not Dead! 10-24-2014
A great line from a great Monty Python movie, and another crisp cover from The Economist: ...READ MORE
Chasing the Red Baron 03-31-2017
You can't eat relative returns is an old aphorism. It sounds like it could come out of Poor Richard's Almanac ...READ MORE
Energy Panic 12-16-2014
Take a look at the price of a barrel of good ol' West Texas Intermediate (see graph below). Two things jump out at ...READ MORE
We build portfolios of best-in-class investment managers across all asset classes. If you would like to be considered for our portfolios, please contact us using our manager inquiries form.
- MANAGER INQUIRIES
SUBSCRIBE TO ANGELES' INSIGHTS
Get the latest investment information and stay on top of market trends.
How Can We Help You?Institutional Investors
Fully resourced investment office built to manage sophisticated client investment programsPrivate Wealth
Personalized discretionary portfolio and wealth management services powered by institutional processInvestment Management
Rigorous process and a flexible platform designed to meet client needsArticles & Insights
Latest insights and perspectives from the Angeles teamContact Us
Get in touch