Fun With Fixed Income

6/9/2014


So far, 2014 has been friendly to bonds.

In the wake of an ugly 2013, the Barclays U.S. Aggregate Bond index, a popular proxy for the U.S. investment-grade bond market, has returned 3.0% so far this year. Long-term bonds have done even better, with both corporate and Treasury indexes delivering double-digit returns, double the S&P 500 Index's performance. The S&P 400 MidCap Index is up 3.5% and the S&P SmallCap 600 Index down 2.0% for the year.

Over long periods, stocks tend to deliver higher returns than bonds. However, most investors — even those who don't need to generate income via their portfolios — should hold both equities and fixed-income securities. Remember that the buy lists — including the short-term bond fund position — are designed to represent not a full portfolio, but the equity portion of a broader portfolio.

While different classes of bonds vary in risk, as a group bonds are less risky than stocks. And because stocks and bonds often follow different paths, bonds can help to diversify a portfolio containing mostly stocks. 

As the charts below show, bond indexes — particularly those focused on long-term bonds — have been competing with stocks so far this year. Of course, the relationship could change by next week.

For fixed-income ideas, check out next week's Dow Theory Forecasts, where we list our selection of bond funds. For information on our recommended funds, visit www.DowTheory.com/Go/Funds.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com