Email of the day (1)
Comment of the Day

September 28 2010

Commentary by Eoin Treacy

Email of the day (1)

Email of the day (1)
"I have managed to build up a little cash by selling some of my poor performing stocks during this mini bull market last month. I was wondering if it is worth investing in corporate bond funds? If yes, which countries / companies? Any information will help."

Eoin Treacy's view Thank you for this question which other subscribers may also find of interest. Corporate and sovereign bonds have done extremely well this year, driving yields in many cases to historic lows. Supply of bonds is rising as companies and governments seek to lock in low funding costs. You would not be early in buying into senior, secured bonds and those that have lagged such as financials have generally done so for a reason. In additional most bonds are pricing in a very sanguine attitude towards inflationary pressures which I believe to be unrealistic beyond the short to medium term.

The UK listed iShares Markit iBoxx $ Corporate Bond ETF yields 4.96% but posted a large weekly key reversal at the beginning of September from a region of prior resistance below 110. It found at least short-term support near 104.75 but would need to sustain a move to new highs to reassert the medium-term uptrend.

The UK listed iShares Markit iBoxx € Corporate Bond ETF yields 3.85% and has not rallied to the same extent as the US Dollar fund. It continues to find support in the region of the 200-day MA.

The UK listed iShares Markit iBoxx £ yields 5.43% and has been a laggard, most likely due to its exposure to financials. However, it successfully broke above 120 in early August and found support near that level this week. A sustained move below 115 would be required to question scope for further upside.

While the Sterling fund above offers perhaps the best mix of yield and potential for capital appreciation of these funds, the heavy weighting in financials may be an area of concern. Alternatively one might consider a spread of high yielding equities with leverage to the growth of the global middle class. You will find a number of reviews of such shares in Comment of the Day over the last month but here is a link to the most recent on September 16th. You might also be interesting in this link to Comment of Day on September 24th where I discussed some other dividend paying international bond ETFs.

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