Email of the day (1)
Email of the day (1)
"I have managed to build up a little cash by selling some of my poor performing stocks during this mini bull market last month. I was wondering if it is worth investing in corporate bond funds? If yes, which countries / companies? Any information will help."
Eoin Treacy's view Thank
you for this question which other subscribers may also find of interest. Corporate
and sovereign bonds have done extremely well this year, driving yields in many
cases to historic lows. Supply of bonds is rising as companies and governments
seek to lock in low funding costs. You would not be early in buying into senior,
secured bonds and those that have lagged such as financials have generally done
so for a reason. In additional most bonds are pricing in a very sanguine attitude
towards inflationary pressures which I believe to be unrealistic beyond the
short to medium term.
The UK
listed iShares Markit iBoxx $ Corporate
Bond ETF yields 4.96% but posted a large weekly key reversal at the beginning
of September from a region of prior resistance below 110. It found at least
short-term support near 104.75 but would need to sustain a move to new highs
to reassert the medium-term uptrend.
The UK
listed iShares Markit iBoxx € Corporate
Bond ETF yields 3.85% and has not rallied to the same extent as the US Dollar
fund. It continues to find support in the region of the 200-day MA.
The UK
listed iShares Markit iBoxx £ yields
5.43% and has been a laggard, most likely due to its exposure to financials.
However, it successfully broke above 120 in early August and found support near
that level this week. A sustained move below 115 would be required to question
scope for further upside.
While
the Sterling fund above offers perhaps the best mix of yield and potential for
capital appreciation of these funds, the heavy weighting in financials may be
an area of concern. Alternatively one might consider a spread of high yielding
equities with leverage to the growth of the global middle class. You will find
a number of reviews of such shares in Comment of the Day over the last month
but here is a link to the most recent on September
16th. You might also be interesting in this link to Comment of Day on September
24th where I discussed some other dividend paying international bond ETFs.