Friday, January 23, 2015

I'm All Out of Bonds (sort of)

Last week I posted about why I am cautious of bonds.

- massive rally in 2014 (losses usually come after spectacular returns)
- extreme bullish sentiment
- extreme moves in price and speed of it
- historical comparisons show limited more upside

Which such extreme gains in the past 3 weeks, rocketing the TLT up almost 7%, even a small reversal like what we are seeing now is highly probable. Wow, so I managed to exit at "the top"? I am no market wizard or guru, this is just statistics.

Since my blog post last week, I did take action to liquidate my bond holdings, which are mainly in the form of unit trusts (how archaic, right?).

You would think with a mix of bonds like that, along with them all being unit trusts, gains would be muted and low, right?

Well, I don't know if it is a good or bad thing, but my overall bond portfolio that I liquidated netted me 5.44% returns. I entered in most of my position in 2013 and early 2014. I think it's not too shabby considering the whole world thought that bonds would be the worst asset class of 2014.

I am now almost all out of bonds, leaving only 2 holdings left - Emerging Market bonds and short-duration bonds. EM Bonds are still attractive to me since they are not in the crazyland that developed markets are in. Short duration bonds are just fixed deposits to me, with some downside risks.

I am now holding a very macro defensive portfolio, though I am holding a lot more cash than I would like. Incidentally, I have also recently increased my exposure to precious metals and Russia. Commodities are looking very attractive now as well. I would love to be invested with a larger portion of my portfolio, but the risks and the available rewards for other asset classes are just not enticing to me.

Don't get me wrong, that is not to say that bonds can't go higher (or stocks for that matter). They surely can. In the market, anything is possible. However, is it probable? From my perspective, no, I don't think so. Weighing the probability and expected returns of the upside against the downside, I have found it prudent to quit while I am ahead.

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