US Total Bonds: PowerShares CEF Income Composite Shows Great Performance

Setting targets for your retirement nestegg must be evaluated based on the risks and the returns of the portfolio. The type of lifestyle achieved in retirement depends on decisions taken today. Bonds provide low risk, predictable income and are a key part of a portfolio. They are an investment with low risk and constant payments. In a previous article we outlined the types of credit risk that are possible for these types of investments.

All bonds are under pressure and the US total Bond market is in the lower half of the table as interest rates domestically are being kept low by the Fed.

Major Asset Classes Trend  04/15/2011

Description Symbol 1 Week 4 Weeks 13 Weeks 26 Weeks 52 Weeks Trend Score
Treasury Bills SHV 0.01% 0.01% 0.06% 0.05% 0.12% 0.05%
Emerging Mkt Bonds PCY -0.45% 0.53% 0.47% -4.3% 6.52% 0.55%
Frontier Market Stks FRN -1.63% 6.32% -7.13% -5.77% 11.34% 0.63%
Intermediate Treasuries IEF 1.49% -0.85% -0.01% -4.26% 6.86% 0.64%
Municipal Bonds MUB 0.84% 0.45% 5.25% -3.69% 0.57% 0.68%
Mortgage Back Bonds MBB 0.71% -0.1% 0.54% -0.01% 3.92% 1.01%
Total US Bonds BND 0.82% -0.26% 0.77% -0.44% 5.01% 1.18%
US Credit Bonds CFT 0.98% -0.02% 1.32% -0.21% 6.11% 1.63%
International Treasury Bonds BWX 0.93% 0.07% 4.49% -0.04% 10.44% 3.18%
International Developed Stks EFA -0.54% 5.23% 2.52% 6.94% 8.47% 4.53%
US High Yield Bonds JNK -0.05% 1.28% 2.68% 8.69% 14.88% 5.49%
International REITs RWX -0.1% 4.52% 1.25% 4.62% 21.16% 6.29%
Emerging Market Stks VWO -1.63% 8.33% 2.25% 6.58% 18.78% 6.86%
US Stocks VTI -0.61% 3.65% 2.9% 15.79% 15.39% 7.42%
US Equity REITs VNQ 2.49% 3.99% 6.7% 10.41% 23.94% 9.5%
Gold GLD 0.97% 4.83% 9.31% 8.51% 30.39% 10.8%
Commodities DBC -2.35% 4.88% 11.24% 24.98% 28.54% 13.46%

In the very short term (1 week) US Bonds ended below other Fixed Income Investments, such as the Treasury Bills (SHV), which is short term focused (maturity less than a year), but Above Municipal Bonds (MUB) and International Treasury Bonds (BWX).

PowerShares CEF Income Composite (PCEF) is a diversified portfolio which includes mostly Bonds (44%), followed by High Yield Bonds (20%) and Options (36%). This provides low risk with a high one year return.

U.S. Total Bonds  04/08/2011

Description Symbol 1 Yr 3 Yr 5 Yr Avg. Volume(K) 1 Yr Sharpe
PowerShares CEF Income Composi PCEF 6.21% NA NA 57 55.92%
Vanguard Intermediate-Term Bon BIV 4.07% 1.7% NA 129 71.62%
iShares Barclays Aggregate Bon AGG 3.73% 4.49% 5.52% 715 114.39%
Vanguard Total Bond Market ETF BND 3.03% 1.62% NA 805 92.35%

Vanguard Intermediate-Term Bond (BIV) is, as its name suggests, a safer Bond in the Medium Term, with lower returns. In other words, a less risky portfolio, that comes with lower returns, composing the investments in 50% of the assets in Corporate Bonds and the other half in US Government Bonds.

BIV can be a good choice taking into account the maturity of the asset and that the risks of the investments can be due to significant changes on interest rate.

iShares Barclays Aggregate Bond (AGG) has a longer performance history. Despite lower 1 year returns, the 3 and 5 year returns are strong which translates into a good price/yield ratio.

Finally, Vanguard’s Total Bond Market ETF (BND), shows a lower one year returns, but showing longer history (3 years), and good volume. It is an ETF based on high quality, medium Weighted Maturity.

US Total Bonds deserve consideration for a diversified Portfolio for medium to long term objectives, linked with consistent returns.

Today Bonds are under pressure with many momentum strategies preferring cash. However, in the long term, a well thought out bond strategy is a critical piece of the retirement portfolio. PCEF delivers strong one year returns but is very new. Having AGG as the safe, proven alternative makes sense.

Symbols: CEF, BND, SHV, MUB, BWX, PCEF, BIV, AGG, Exchange, Tickers, (NYSE: CEF), (NYSE: BND), (NYSE: SHV), (NYSE: MUB), (NYSE: BWX), (NYSE: PCEF), (NYSE: BIV), (NYSE: AGG)

Written By The Staff Of

LTI Systems, Inc. is the operator of MyPlanIQ.comand The founders of LTI Systems have extensive technology and business background in computer and semiconductor industries. They have been using the strategies provided by MyPlanIQ for their own personal retirement and taxable investments. The mission of LTI Systems is to make wealth management investment strategies that are used to be only accessible to institutions and high net worth individuals available to private investors with a fraction of flat cost and ease of use. The founders of LTI Systems, investors themselves, take pride in creating such a system and service for investors by taking the perspective from the investor side. They are using the system and the strategies for their own investment and align their interests with their customers.  

MyPlanIQ’s blog provides periodical articles to discuss issues related to retirement plans (401(k), 403(b) and IRAs), deferred compensation plans (457), college savings plans (529), taxable brokerage investment accounts, variable annuities and universal life insurance plans. It also covers investment strategies, specifically strategic and tactical asset allocation and investment products such as ETFs and mutual funds. In addition, it syndicates daily articles that are related to retirement planning, personal finance, investment strategies, annuities, insurance, college savings and market/economic outlooks. It provides a comment and discussion community for readers.

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