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Who are the fixed-income commentary winners–and why?

Learning about new sources of fixed-income commentary was the biggest benefit of running my survey about “Who writes the best fixed-income commentary?” (see the original survey, which is still open for comments). You’ll find the recommendations of my industry connections below.

The survey also showed me what financial professionals think makes fixed-income commentary great. I’m grateful to my LinkedIn connections, including many professional investors, who shared their insights. I’m no bond geek, so I enjoyed learning from the professionals. Although survey participants were anonymous, I believe that many of the respondents come from among the fixed-income professionals whom I asked to take the survey.

The race for the #2 spot

Bill Gross of Janus Capital killed the competition in this survey. He racked up 50 percent of the vote. This doesn’t surprise me. After all, he’s one of the first portfolio managers whom most people think of when asked to name a fixed-income commentator.

My initial survey asked people to vote on a predetermined slate of candidates, which I’d collected via LinkedIn. But it also allowed for write-ins.

Below are the winners from among the names suggested for votes, along with comments that survey respondents made about them. I’ve included a link to what seems to be the best source of the investment commentary that my respondents enjoyed. I’ve also shared some of the respondents’ comments on the contenders.

  • Janus commentary by Bill Gross—Respondent 1: “Authoritative – influences conversation and identifies themes that everyone else parrots.” Respondent 2: “Touches on the macro issues driving the fixed income markets in a way that usually engages the reader. Tangents make it interesting.” Respondent 3: “I don’t typically work with fixed-income securities, but regularly read Bill Gross’ reports to help find interest rate trends and get insights into where bond yields/inflation might be heading. Bill’s commentary always comes with personal anecdotes, light humor, and likeability.” Respondent 4: “He has a breezy, confident style that draws you in. Bill has written for decades, and has a clear ‘voice.’ He used to read it aloud in a podcast, and his cadence and phrasings are quite distinctive and natural.”
  • DoubleLine
  • Hoisington Investment Company—”Lacy Hunt is great Fed watching commentary“; “Opinions expressed are based on big picture macro views.”
  • Loomis Sayles commentary by Dan Fuss—The PDF commentary for the Bond Fund seems a bit bland compared to the colorful commentary that I’ve heard Fuss share in presentations to the Boston Security Analysts Society. Perhaps his fans are responding to his commentary delivered on TV or in interviews. Or perhaps there is meatier commentary hiding elsewhere on the Loomis Sayles website.
  • Nuveen’s municipal bond commentary by John Miller
  • TCW/MetWest—”TCW MetWest has, in our opinion and for our investment consulting purposes, the best quarterly fixed-income market commentary. They release talking points shortly after quarter-end and then a more developed review a couple of weeks later.”

Best firms for fixed income commentary

More fixed-income commentary contenders

A number of people wrote in suggestions that weren’t included in the vote tally. I’m including their comments, when appropriate. I also include a link to what I believe are the online sources to which survey participants referred.

  • BCA Research (this is a paid service, but you can sample the firm’s insights on The BCA Blog)—”It’s designed to meet my needs and interests and not those of the firm sponsoring the commentary.”
  • Bloomberg Credit Research team (you’d need a Bloomberg terminal to access their content)—”The insights are fantastic and because it is on the terminal, I can easily use their charts and graphs and Excel sheets.”
  • Bond Squad, a paid service—”independent, frank, timely, unconflicted, and written by someone who has worked with both institutional and retail investors for 30+ years. I consider daily e-mails/weekly longforms must reads.”
  • Brean Capital’s Peter Tchir (@tfmkts) who blogs on Forbes—for “macro strategy and asset allocation. Brean’s stuff…takes you through an argument for or against a positioning or the rationale for a market move and how to benefit by it. It’s about info and context.
  • Cumberland Advisors—no one commented on this commentary’s strength, but I used it to illustrate my first-sentence check approach to editing your own writing.
  • Goldman Sachs Asset Management—”great weekly letters, on a variety of topics including the broader economy, but often is insightful and more timely than quarterly pieces, especially since the markets seem to move faster these days than ever before.”
  • Grant’s Interest Rate Observer,  a paid service—gets into issuer-level detail that is a bit deeper than some need.
  • Janus Capital’s Fundamental Informed quarterly commentary—”The piece is more formal than Bill’s at times bizarre monthly commentary and takes a serious look at what is driving their fixed-income decision-making.”
  • Guggenheim—”not as product driven as many others, tends to have more independent views and writes on a sophisticated level rather than for general retail investor audience”
  • Municipal Market Analytics‘ Matt Fabian (paid service)—”Clear and concise combination of economic, fundamental, technical, political [factors]”
  • Oaktree Capital’s Howard Marks—”Topical” and “really insightful”
  • PIMCO’s Harley Bassman—”Experienced, easy to read”
  • PIMCO, other sources—”We don’t rely on any general market commentary from PIMCO, but rather read their ad hoc stuff religiously. But the real gem out of PIMCO is usually their verbal comments on webcasts (like on AssetTV) if you can see past their infomercials (ie, they plug themselves shamelessly).”
  • The Rieger Report on the Indexology Blog of S&P Dow Jones Indices—”The information provided is independent and unbiased. The reports are not trying to sell or convince anyone to invest in a particular product instead they are arming investors with information to make decisions.”
  • Wilmington Trust’s  Stephen Winterstein—”He presents an interest-rate agnostic view of the fixed income world (in other words he doesn’t waste time focusing on the unknowable . . . interest rate directionality). He does focus on credit analysis and larger geographic trends where his experience and conviviality shine.”

Explaining why they didn’t go with one of the big names, one respondent said, “In general I feel that [Doubleline’s Jeffrey] Gundlach and Gross ‘talk their book’ in their commentaries. They are good to read, but with a jaundiced eye (I am a fixed income guy!)

What makes fixed-income commentary great?

Survey respondents gave roughly equal top billing to the following characteristics of great commentary, ranking the characteristics on a scale from 1 “Most important” to 5 “Not at allWhat makes fixed incoome commentary great? important”:

  • Fundamental analysis that’s good—one respondent said, “Facts and figures are great but context and implications are key.”—Average ranking 1.5
  • Writing that is clear and easy to understand—I was delighted with the comment that “To be GREAT, it must be concise and jargon-free, or at least low-jargon.”—Average ranking 1.5
  • Different perspective—Average ranking 1.63

Next came “Writing that is distinctive and colorful.”

Lagging far behind were “Predictions that are accurate” and “Technical analysis that’s good.” As for accuracy of predictions, on respondent said, “I actually think it’s more important to understand their rationale (and agree or disagree) rather than merely accept anyone’s opinion as fact.”

Another factor, which I gleaned from comments on respondents’ favorite commentators, is that my respondents liked commentary that focused on the readers’ needs, rather than on promoting the firm or its investment strategies. That makes it tough for fund managers to excel.

How great fixed-income commentary differs from great commentary about other asset classes

Here’s my summary of what people said in their open-ended comments about what distinguishes great commentary about bonds:

  • It matters more, said a respondent who believes that “bond markets drive stock markets long term.” On a related note, another respondent said, “Fixed income is the area that is most important to identifying global-macro trends and future economic prospects by looking at the current situation on yields vs. interest rates and where they are headed; stocks are volatile and always changing; other asset classes are in a league of their own.”
  • It’s more oriented to the longer term, with “less emphasis on daily tactical or daily news type of hyperbole.”
  • It’s more diverse because each bond sector has unique characteristics.
  • It shows awareness of whether the buyers are investors or traders and the diverse purposes (total return/income/diversification/safety) for which fixed-income is used.
  • Unlike commentary about stocks, which is about stories, commentary about bonds, is “about stories as well as math, f/x, economics, and liquidity.” This seems to relate to another person’s comment that “Fixed income commentary should be based on top-down analytics.”

Annoying habits of top fixed-income commentary writers

The commentators whom I’ve discussed would be even better if they could clean up some issues with their writing and presentation, in my opinion.

Here are the annoying habits that I noticed as I viewed their writing samples.

  • They are guilty of “Bloggers’ top two punctuation mistakes” and other usage mistakes. I can understand their firm’s editorial staff allowing them to have distinctive voices. However, I’d like to see the editors rein in outright mistakes, such as writing “the gap has broached” instead of “the gap has breached.”
  • They use too much jargon, especially if their commentary is aimed at individual investors. They could learn from Donald Trump and ask themselves “What would The Wall Street Journal do?

You can improve YOUR investment commentary writing with my June 23 webinar.

 

Reader challenge: Can you explain duration better than The New York Times?

The duration of a bond isn’t easy to explain in few wordsTiny Yields Pose Risks for Bond Funds. This is why I was delighted by the brief description I found in The New York Times.

Author Carla Fried wrote, “For the most part, managers seem to agree that it is best to limit a fund’s duration, or sensitivity to changes in interest rates. The longer the duration, the more yield you get today, but with the trade-off of a bigger price decline if rates rise.” This paragraph appeared in “Tiny Yields Pose Risks for Bond Funds” on July 8, 2012.

Can YOU explain duration better?

I’m interested in alternative explanations of duration that an ordinary American can understand. Please leave your suggestions below.

Reader challenge: Propose a new title for this commentary

Titles count. Especially in these days of search engine optimization, better known as SEO. But even without SEO, the quality of your blog post or article title can make a difference in your readership.

Today’s Reader Challenge is coming up with a better title for a piece of published investment commentary: “The ‘Great Recalibration.’

First reactions to “The ‘Great Recalibration’ ” as a title

When I skimmed the title “The ‘Great Recalibration,’ ” I couldn’t tell what it was about. Then I read “Volatility in third-party credit ratings heightens the value of proprietary credit research.” Aha. This told me I was reading about bonds and that there might be some useful information in the article. This prompted the Facebook poll you see below.

However, reader comments (see below) on the poll made me think this title provides good fodder for conversation.

Please give your title suggestions below. You’ll probably want to visit the article–at least briefly. I look forward to hearing from you.

Notable quotes from the CFA Institute’s emerging markets conference

So many great emerging markets presentations, so little time to blog about them.

Below you’ll find quotes or paraphrases of opinions voiced by speakers at the CFA Institute’s  “Investing in Emerging Markets” conference held in Boston on October 19. If these snippets pique your interest, watch the CFA Institute website for podcasts or other records of selected presentations. Also see my recent blog posts, “Bubble?–Emerging markets scrutinized by CFA Institute conference,” “ISI’s Straszheim: China’s interest rate hike is ‘tapping the brakes’,” and “Cautious optimism on emerging market stocks from SSgA’s Hoguet.”

Paulo Vieira da Cunha, Tandem Global partners

  • There is no decoupling. Two-thirds of global consumption and trade is in the advanced economies.
  • There are lots of interesting plays in Brazil today, if you are careful.
  • It’s very clear the Brazilian economy is overheated.
  • China was a big factor in Brazil’s post-2008 recovery.

Kristen Forbes, MIT Sloan School of Management

  • There are few options for emerging market countries to control the impact of capital inflows.
  • Experts disagree about whether emerging market countries should impose temporary taxes on capital inflows.
  • Academic literature says capital controls have little impact, especially long-term. At best, they can shift inflows to safer composition.

Sivaprakasam Sivakumar, Argonaut Global Capital

  • The best opportunities in India are investing in first-generation entrepreneurs. Look for the next Infosys.

Tina Vandersteel, Grantham, May, Van Otterloo & Company

  • When you invest in local emerging market debt, you face the “roach motel risk” of “you can check in, but you can’t check out.” Sometimes currencies can’t be converted.
  • “You are picking up pennies in front of the train” when you invest in certain kinds of emerging market debt.
  • Invest in emerging market debt for value and diversification, not for “safety,” betting against the U.S. dollar, or an inflation hedge.

Cliff Quisenberry, Caravan Capital Management

  • There is a significant different between frontier countries in the index and the other frontier countries.
  • Country selection is more important in frontier markets than in emerging markets.

AlisonAdams, Alison Adams Research

  • Emerging markets’ share of global market capitalization could overtake developed markets’ share by 2030, according to Goldman Sachs.
  • Most emerging market governments are reasonably market-friendly.
  • Extreme events can present buying opportunities, as with the Mumbai attacks in India in 2008.

Bubble? — Emerging markets scrutinized by CFA Institute conference

Is now a good time to invest in emerging markets?

The answer depended on which speakers or attendees I listened to at the CFA Institute’s “Investing in Emerging Markets” conference held in Boston on October 19.

The overall mood was cautiously optimistic for the long-term. “We’re not in a bubble yet,” said George Hoguet of State Street Global Advisors, who also mentioned some concerns about emerging markets.

At least one speaker said some emerging markets are already in a bubble and several attendees told me they’re waiting for a pullback before they put money into emerging markets.

It’s not only emerging market stocks that worry investment professionals. While some investors are eager to pick up an extra six percent (600 basis points) or so by investing in emerging market debt, Grantham, Mayo, Van Otterloo & Company’s Tina Vandersteel suggested that emerging market bonds may not be as safe as you think. This is especially true of external debt, which has a 32% probability of default vs. only 2% for local debt, although spreads of about 3% (300 basis points) provide a cushion for defaults, she said.

What about you? Are you ready to invest in emerging markets today?

Stop! Get a better title, or forget winning readers

Would YOU eagerly read an article with the following title?

Gulf Oil Spill

Impact on State and Local Government


Analysis of original title: Not another oil spill story!

Thousands of articles about BP’s oil spill are fighting for your attention. “Not another oil spill story!” is probably the reaction of many readers who scan this title. The big problem: The title doesn’t say why you should read it.

Let’s look at the first paragraph to find a reason that you can highlight in a new title.

The Gulf Oil Spill will certainly have long-term repercussions for the fishing and tourism industries as well as the overall environment in the impact areas of the Gulf region. It is early in the disaster to fully evaluate the long-term effect on the states most at risk of contamination: Louisiana, Mississippi, Florida and Alabama. We do not anticipate immediate negative credit implications at the state level for those in question, but feel concerns are more likely to materialize at the local level at this time. We are continuously monitoring developments in the Gulf and considering our credit exposure in these areas.

Aha! Now I get it. Look at the phrases above that I bolded. Readers of this wealth management firm’s newsletter should realize that the firm is looking out for the safety of their municipal bond portfolios. Too bad the title didn’t tell them that.

The introductory paragraph doesn’t help either. It starts with generic information that doesn’t relate directly to investments. Even worse, it buries the most important information in the paragraph’s second half.

Also, if readers aren’t fixed income geeks, they may not realize that “negative credit implications” translates into “possible bond downgrades that could trim the value of your municipal bond portfolio.”

Please stop here. Before you read any more, jot down a new title and first sentence for this article.

Looking for a better title

Here are some alternative titles.

  1. Will Your Municipal Bond Portfolio Spill Like BP’s Well?
  2. No Need to Worry Yet About the Oil Spill’s Impact on Your Bond Portfolio
  3. Assessing the Oil Spill’s Impact on Muni Bonds: The Three Most Important Factors

Which do you like best? Feel free to share your title ideas.

Related posts

Treasurys vs. Treasuries — Which is the right spelling?

What’s the right way to spell the plural of Treasury, as in U.S. Treasury bond?

Should it be “Treasurys,” following the rule that the members of the Murphy family become Murphys? Or should it follow the normal rules of creating plurals for words that end in the letter y?

I panicked when I saw “Treasurys” in The Wall Street Journal. Eek! Have I been spelling the word wrong for 20-odd years?

However, I quickly discovered that opinions are split. When I Googled the terms, there were 2.2 million results for Treasuries vs. only 1.5 million for Treasurys. 

The evidence for Treasuries
Here’s the rule that would typically apply. “…if a word ends in a -y that isn’t preceded by a vowel, the plural is formed by omitting the -y and substituting -ies…,” according to Garner’s Modern American Usage. Garner makes an exception for proper names ending in y. He agrees that Murphy becomes Murphys.

Does Treasury qualify as a proper name? Proper names are usually personal names–such as Murphy–or geographic names–such as Washington, D.C. Following this reasoning, Treasuries makes sense.

My friend, financial editor Harriett Magee, found that sources including the Barron’s Dictionary of Finance and Investment Terms agreed with Treasuries. Plus, her spell-checker flagged Treasurys as a mistake. 

If you prefer Treasurys…
You’ve got some high-powered company if you stick with Treasurys. When The Wall Street Journal spells it that way, that legitimizes it in my eyes.

If you can’t bear not knowing what’s 100% correct, then use the workaround that Harriett Magee suggests. Refer to Treasury bonds, Treasury notes, and so on. It’s bit wordy, but correct. 

Follow this advice, no matter what you decide
It’s important to use your words consistently in your corporate communications. Pick one spelling and stick with it. 

Consider creating a corporate style guide that lists preferred spellings. It’s a lot easier to have an authoritative source for your company than to try to keep the rules in your head.

My thanks go to David Glen, senior vice president at Boston Private Bank, for raising this question.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net.

JP Morgan’s Eigen: Put your clients in non-traditional, long-short fixed income

Too many of your clients are over-invested in traditional fixed income, in the opinion of William Eigen, JPMorgan Asset Management’s director of absolute return strategies and portfolio manager of the JPM Strategic Income Opportunities Fund. He made a case for using fixed income funds that can go short and use synthetic financial instruments during his presentation to the Boston Security Analysts Society on March 15. 

Why bond funds haven’t changed
Fixed income funds really haven’t changed in 30 years, said Eigen. Their managers still basically rely on changes on interest rates to make money. In contrast, he said, managers of equities have driven the development of hedge funds.

Fixed income hasn’t evolved because interest rates have been falling for 30 years, said Eigen. In other words, with falling rates driving capital appreciation, there was no need for new techniques.

Can you imagine, Eigen asked, what would have happened to stock funds if the Standard & Poor’s 500 had gone straight up for thirty years? Clearly he believes this would have stifled innovation in the management of stocks. Instead, the stock market’s ups and downs spurred creativity. 

The need to protect your clients’ capital 
Traditional fixed income performed more or less okay for thirty years, with some rocky years here and there. But the interest-rate decline that drove bonds’ long-term positive performance will end. “I’m nervous with short rates at zero,” said Eigen, “yet investors are still piling in.”

Indeed, Eigen managed traditional bond funds during his 12-year career at Fidelity Investments. He left because he felt he couldn’t protect his investors’ capital adequately under the limitations of traditional bond investing. “I won’t be held prisoner to duration,” said Eigen. He wanted to be able to short-sell and put on relative value trades using synthetic instruments.

It’s important to earn positive returns in fixed income by taking advantages of factors other than falling interest rates. If not, asked Eigen, what happens when a long-term trend of rising interest rates takes hold? If you’re familiar with concept of duration, you know that bond prices fall when interest rates rise. Another negative: With interest rates at historic lows, there’s no “coupon cushion” of attractive interest rates to ease the pain of bond investors.

It’s easy to see the appeal of short-selling bonds in a rising interest-rate scenario. Investors would profit by essentially betting on bond prices’ decline.

Now Eigen can take advantage of short-selling as manager of the JPM Strategic Income Opportunities Fund, a long-short relative value fund that does not use leverage. The fund can use synthetic instruments. It can also hold cash because Eigen’s top priority is not to lose money. That’s a challenge for which cash is sometimes the only solution.

The fund is managed as an absolute-return fund with a target of t-bills plus 2%-8%. “You don’t need duration to generate solid fixed income returns,” Eigen said. Another potential benefit of his approach: it has “zero correlation to traditional fixed income,” Eigen said. 

Outlook: Rising rates, risky sovereign debt, relative value
Eigen thinks interest rates could rise faster than most pundits expect. Investors might get scared once rates start rising. Then they might quickly bail out of bonds to cut their losses.

Eigen is also scared about sovereign risk. Look at what’s happened in Europe and Dubai, he said. His fund is taking advantage of that on the short side.

Synthetic instruments such as credit default swaps are a good way to take advantage of the relative value opportunities that arise in times of low volatility in bond markets. For example, investors seem to perceive a solid company such as Berkshire Hathaway as on a par with lesser insurance companies. Synthetic instruments are sometimes the only economical way to invest in this disparity.

What do you think? Is the end near for traditionally managed fixed income funds–or have they still got some life left in them?

Related posts
Fund using alternative strategies gain steam
* I LOVE this fixed income presentation
* Strong words from editor of Financial Analysts Journal

I LOVE this fixed income presentation!

“Bonds should be boring.” That’s what one head of fixed income of fixed income used to tell me. But that doesn’t mean that fixed income presentations should be boring.

Northern Trust has published the most enjoyable fixed income presentation I’ve ever seen. It’s called “Fixed Income: Almost A Bedtime Story.”

What’s so great about this post?
— Simple message, plain language
— Uncluttered pages
— Sense of humor — Oh my goodness! Northern Trust wrote an amusing disclosure on slide #23. “Psst: Fixed income may also be volatile in the future.”

These are characteristics that you can strive for in your presentations, though humor is a bit tricky. I think you need lots of experience grappling with compliance to find the laughs in slide #23’s disclosure. 

I would like to shake the hands of the team that created this presentation. It’s amazingly good. If it spawns imitators, that’ll be a great development for the folks who currently snooze through deadly presentations.

Fixed income viewpoints from CFA Institute conference

Here are opinions on currency and CDOs that grabbed my attention at the CFA Institute’s Fixed Income conference last week.

If YOU were at the conference, I’d be interested to learn what surprised or intrigued you. 

“The New Currency World Order”
Ron Liesching of Mountain Pacific Group, LLC

The U.S. dollar cannot be replaced as the world’s reserve currency, but its role will be profoundly altered.

It’s time for investors to consider
*  Hedging their U.S. dollar risk
*  Active currency management
*  Active long commodity allocation
*  Long commodity currencies
*  Strategically long emerging market currencies
*  Global is the new core

“The Pricing of Investment-Grade Credit Risk during the Financial Crisis” 
Joshua Coval, Harvard Business School

There’s evidence that ratings agencies bent their standards to bestow too many AAA ratings.  They rated 75.5% of CDOs’ capital structure as AAA, when the rating agency model allowed 63.4%, according to “Did Subjectivity Play a Role in CDO Credit Ratings?” by John Griffin and Dragon Tang. Thanks, Prof. Coval, for sending me the link to Griffin and Tang’s article!

The collapse of structured products will impact the economic recovery to the extent that cheap credit is less available. The U.S. consumer had been the engine of U.S. GDP growth thanks to cheap credit.

Related posts:
* Dan Fuss: Bond investors have learned from experience…not