Bonds Are The Answer (Feb 24 2009)

Cash Returns (Jan 7 2009)

Tax Free Savings (Jan 1 2009)

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Bonds Are The Answer

Financial Planners are encouraging to position their portfolios more defensively than in the past, which means more high-quality bonds and less risky investing in sectors like energy and financials.  Most investors are asking the question: what to do now?  What is considered conservative and defensive rather than risky?  Where do I find investments like this?  And how do I participate in these investments?

The answer comes in the form of bonds.  First, not only have bonds been a great hedge amid the equity sell-off of recent months, but they have actually outperformed far more broadly. In late October, aggregate total returns on the Merrill Lynch Canada Government Bond Index have exceeded those on the TSX composite over the past five years (6% annualized average vs. 5.8%) and 10 years (5.9% vs. 5.3%), and come very close over the past 15 years (7% vs 7.2%). That is to say, through what had been one of the greatest bull markets in history, one would have done just about as well buying bonds and sitting tight.

Second, the fundamental environment looks supportive for fixed income. The yield on a long Canada bond doesn’t immediately look impressive near 4.25%, but we expect the combination of recessionary demand weakness and lower energy prices will take CPI inflation down to (and perhaps through) zero by mid-2009. A real yield near 4% could be a precious thing in this sort of environment. 

To be sure, there are risks in Canadian bonds. Canadian governments are likely to issue more of them, with the souring economy likely to produce deficits in 2009 and beyond, and with the public sector potentially needing to lever up its balance sheet to offset the global private-sector deleveraging. We suspect the term premium — needed to compensate investors for making longer commitments — still has room to rise, as befits a world where we’ve gone from seeing the future as indefinitely tranquil to not knowing what it will look like tomorrow.

Another item to consider is rather than purchasing a government bond, of which an abundance are going to be issued, investors should begin looking elsewhere in search of conservative, stable bonds that offer a higher rate of return.  The MBN Bond Fund is a prime example as Canada’s first high yielding return product, with its effective annual interest rate of 8.25%.    

To learn more about the MBN Bond Fund and how you can participate in a fixed, secure investment that still offers the high return that you want, contact MBN Bond Fund directly at 1.877.212.8002 or email us at info@fundmanager.com

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