Why Dennis Stattman is Way Underweight Bonds
- Joshua M Brown
- June 13th, 2012
Dennis Stattman (BlackRock Global Allocation) is not a household name fund manager but he is truly one of the greatest asset allocators in the history of the industry. I've been an investor with his fund for almost a decade now, he's been at it since 1989.
I'm always interested to see how Dennis is positioned asset class-wise and geographically given that he has a mandate to go anywhere he sees a good risk-reward profile. Right now, he is very concerned about the risks in bonds; he's carrying a 50% lower bond weighting than his world allocation fund peers ...
From Investment News:
“To put it simply, I think the bond market in general is bad value right now,”...
The 10-year Treasury, which is currently yielding 1.66%, is of particular concern to Mr. Stattman. “With that yield, it's easy to imagine losing an entire year's coupon in a single bad trading session,” he said. “That's really disturbing to me.”...
“With TIPS you have to go 16, 17 years out on the maturity to get a break-even yield,” he said. “There's a great deal of risk in high-yield right now, too. The default rate is about as low as it's going to get, and the momentum of the economy is not encouraging.”
Mr. Stattman's fixed-income outlook is contrarian to the general investor community. Year-to-date through the end of May, investors had put over $110 billion more into taxable bond funds than they had taken out, compared with $80 billion of net inflows over the comparable five-month period last year, according to Strategic Insight.
Lots of people express concern about bond risk, not many (according to the flows) have actually stopped buying them though.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.