Tuesday 09 February 2021 by Jonathan Sheridan Sample-portfolio-800 Trade opportunities

Sample portfolios update – January month end

Equity markets, and in particular those stocks which are heavily shorted, have grabbed the headlines recently, with huge short squeezes occurring in a handful of names.

Fortunately the bond market has basically ignored all this volatility – remember one of the great benefits of bonds is that being confident in maturity means you can ignore market price movements as there is a future date where you will be repaid, whereas an equity is only worth what the market says at any given time as they are perpetual.

January is traditionally a quiet time of the year and this year has been no exception – there have been no primary issues of note and yields have continued their grind lower.

As such, the portfolios are largely unchanged as the bonds we liked before Christmas haven’t had the chance to be replaced by anything shiny, new and more importantly, cheaper.

Conservative portfolio:

This portfolio is all investment grade and all AUD.

The current portfolio yields 2.77% and consists of 10 bonds of roughly equal weight by value to total an approximate $500k spend.

There were no changes to this portfolio in the month. With no new issuance in the primary bond market to benchmark against, and limited supply in the secondary market due to many traders being away, we were net sellers if anything of investment grade bonds on strong profit taking.

There remains supply in most of our favourite names, but no new bonds to change our opinion on the best value bonds in the market.

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Balanced portfolio:

The Balanced portfolio adds higher yielding bonds to the base Conservative portfolio to achieve a higher yield, while still maintaining a balance between risk and return, skewed towards preserving capital rather than chasing yield.

It aims to have between 15-20 positions, with the high yielding bonds in smaller parcel sizes (comprising 24% of the total portfolio) to reflect their riskier nature.

The current portfolio has 15 bonds, yields 3.61% and is an approximate $600k spend.

As above, given the Balanced portfolio is based off the Conservative portfolio, we made no changes. Supply is also hard to come by in the unrated AUD market, as there is a dearth of issuance. Our high yield picks also remain the same with periodic small sizes becoming available.

High Yield portfolio:

The High Yield portfolio looks to generate a high yield while still looking to have a bias towards as low risk positions as possible.

This is achieved by good diversification and attempting to identify fundamentally mispriced bonds.

The current portfolio has 15 bonds, yields 5.87% and is an approximate $500k spend, demonstrating the concept of greater diversity in higher risk positions.

We did make one change to the High Yield portfolio this month, removing the Ford 2023 bond. With a yield to maturity in 2023 of just 2.83%, despite its sub investment grade credit rating we decided that this didn’t really represent a high yield, particularly since there are some (admittedly longer dated) investment grade bonds that yield more.

We haven’t replaced it due to a lack of options, but will look to next month when hopefully supply picks up.

Other USD bonds we like:

The table below continues to show other USD bonds we like that don’t fit the parameters of this particular portfolio.

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To view and download our Sample Portfolios, please click here.