In this article, Feb outlines a bond-buying timing strategy that claims it doesn't require any guesses about the future, and improves risk-adjusted returns.
1. Hold T-bills by default.
2. When bonds yields are in the top 50%, historically, buy them
There is a lot more to it than that, and he studies the strategy first with Treasuries, but then goes to IG corporate, EM, HY, etc.
https://www.cambriainvestments.com/wp-c ... e-Time.pdf
The concluding paragraphs:
1. Hold T-bills by default.
2. When bonds yields are in the top 50%, historically, buy them
There is a lot more to it than that, and he studies the strategy first with Treasuries, but then goes to IG corporate, EM, HY, etc.
https://www.cambriainvestments.com/wp-c ... e-Time.pdf
The concluding paragraphs:
Unfortunately, and despite the current drawdown many bond investors are experiencing, some bonds categories still have even
lower yields than T-bills. The traditional yield curve is still inverted, and many, if not all of the assets examined in the paper do
not have a yield spread over T-bills that would place them in the favorable top half of history. If those bonds don’t compensate
you with a reasonable margin of safety, is that a wise decision to allocate?
We don’t think it is, but we do think there’s a better approach. With this paper, we attempted to illustrate the effectiveness
of implementing a tactical approach to fixed income investing based on the evaluation of yield spreads across a variety of fixed
income sectors. We think the power lies in its ability to guide investors over time based on objective rules that have historically
shown the ability to earn potentially higher returns than a simple buy-and-hold approach, but with lower volatility and drawdowns.
This simulation helps to answer the question, “When does it make sense to take on extra risk, and when might it not be prudent?”
Right now this systems is signaling: “T-bills and chill”. But at some point in the future, it will signal a potential green light to take
on the additional exposures once again.
With that said, we think this dynamic approach to fixed income can serve as a core approach for investors looking for a strategy
with an emphasis on the safety of Treasury bills, but systematically takes risk when opportunities and sufficient margins of
safety present themselves.
Perhaps we will need to expand the phrase in the coming years to: “Let’s just T-bills and chill…. most of the time”.
Statistics: Posted by watchnerd — Fri May 10, 2024 5:49 pm — Replies 0 — Views 362