K.I.S.S. = Corporate Bonds
Most of you have heard me suggest that the best investment strategies are usually the simplest. In the wake of significant equity market weakness, I offer a simple and profitable strategy: Continue to overweight corporate bonds.
- Corporate bonds of all ratings returned an average of 2.05% in July, the best return in 12 months.
- Investment grade corporate bonds outperformed U.S. Treasuries by 33 basis points in July.
- Corporate balance sheets held $1.91 trillion in cash for Q1 2011 versus $1.39 trillion for Q1 2009 according to Federal Reserve data.
- While the equity performance of financials continues to languish, owning the debt of financial institutions has been the favorable strategy.
- The ratings upgrade cycle remains in the "sweet spot:"
- For investment grade this quarter, there have been 51 upgrades and 15 downgrades tracking a Q3 ratio of 3.40.
- For investment grade year to date, there have been 246 upgrades and 85 downgrades tracking at 2.89, the highest in 10 years.
Which risk would you prefer to own - corporate or government? You know my answer: K.I.S.S. = Corporate Bonds.
- Of the 361 S&P 500 Index corporations that have reported 17% earnings-per-share growth and 14% sales growth:
- 33 energy cos. with 39% EPS growth
- 27 material cos. with 43% EPS growth
- 50 tech cos. with 32% EPS growth
- 53 industrial cos. with 17% EPS growth
- 19 utility cos. with 4% EPS growth
- 37 consumer discretionary cos. with 8.5% EPS growth
- 20 consumer staples cos. with 7.5% EPS growth
- 72 financial cos. with 6% EPS growth
- 44 healthcare cos. with 4% EPS growth
Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.