Why Dennis Stattman is Way Underweight Bonds

Dennis Stattman (BlackRock Global Allocation) is not a household name fund manager but he is truly one of the greatest asset allocators in the history of the industry.  I’ve been an investor with his fund for almost a decade now, he’s been at it since 1989.

I’m always interested to see how Dennis is positioned asset class-wise and geographically given that he has a mandate to go anywhere he sees a good risk-reward profile.  Right now, he is very concerned about the risks in bonds; he’s carrying a 50% lower bond weighting than his world allocation fund peers …

From Investment News:

“To put it simply, I think the bond market in general is bad value right now,”…

The 10-year Treasury, which is currently yielding 1.66%, is of particular concern to Mr. Stattman. “With that yield, it’s easy to imagine losing an entire year’s coupon in a single bad trading session,” he said. “That’s really disturbing to me.”…

“With TIPS you have to go 16, 17 years out on the maturity to get a break-even yield,” he said. “There’s a great deal of risk in high-yield right now, too. The default rate is about as low as it’s going to get, and the momentum of the economy is not encouraging.”

Mr. Stattman’s fixed-income outlook is contrarian to the general investor community. Year-to-date through the end of May, investors had put over $110 billion more into taxable bond funds than they had taken out, compared with $80 billion of net inflows over the comparable five-month period last year, according to Strategic Insight.

Lots of people express concern about bond risk, not many (according to the flows) have actually stopped buying them though.

Source:

Why Dennis Stattman is cutting out coupons these days (Investment News)