Letters to the editor: Other views on bond laddering and strategic beta

A reader disagrees with bond laddering as a safe strategy and another warns of too much 'sizzle' with strategic beta.

Jun 1, 2014 @ 12:01 am

+ Zoom

Bond laddering not a sound strategy

I would like to comment on your recent article “Bond ladders for fans of safety” (InvestmentNews, May 12).

Although I would agree with the statement that bond ladders shine in a rising-rate environment, we have had a trend of lower rates for more than 30 years, and the so-called experts have been calling for higher rates for more than four years.

Like the boy crying wolf, they will eventually be right. The problem is when. One year? Two years? Four years?

Bond laddering not a sound strategy

Everyone is entitled to his opinions, but not his own facts.

Individuals are starving for yield, and with the current steep yield curve there is a huge opportunity cost involved in employing a laddering strategy. If we look at AA-rated munis, there is a give-up of over 200 basis points a year by employing a 10-year ladder versus buying the sweet spot of the curve, 20-year maturities.

Recent AA five-year munis, which are the average of a 10-year ladder, yielded about 1.2% versus 3.6% for 20-year bonds.

From a dollar perspective, laddering a $1 million portfolio would generate about $12,000 per year versus $36,000 for 20-year maturities, a give-up of $24,000 a year. For a $2 million portfolio, the opportunity cost is $48,000 a year.

With the real unemployment rate close to 12%, anemic economic growth of 2%, and little or no inflation, I do not see any of the elements necessary for higher interest rates.

There is almost universal consensus among the experts that interest rates must rise. When was the last time universal consensus as to interest rates, stock prices, commodities or real estate turned out to be correct?

Barry Rabinowitz

BER Financial Group

Plantation, Fla.

Watch out for sizzle around strategic beta

I enjoyed the article “Strategic beta taking its place in the sun” (InvestmentNews, May 26). I think this will be a massive growth area. As ETFs grow in popularity I think the majority will be some sort of strategic beta, because we don't need another S&P 500 index fund.

Unfortunately, like most things with Wall Street, there will be some good, some bad and some ugly out there, as it is easy to curve fit any back test you want and create some sizzle around a concept that has no real basis in fact.

We have integrated strategic beta into our traditional tactical strategies as an S&P 500 substitute. We also have launched a new tactical core/satellite strategy that uses some select strategic beta ETFs as a core instead of market cap indexes.

Matthew Tuttle

CEO and CIO

Tuttle Tactical Management

Stamford, Conn.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Cybersecurity threats advisers are seeing right now

The key threats advisers are seeing right now seem to change daily. Michelle Thetford of Schwab Advisor Services explains how to protect yourself and your clients.

Latest news & opinion

DOL fiduciary rule causing DC-plan record keepers to change business with insurance agents

Principal has communicated that independent agents must change their business models to keep receiving compensation.

DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

Take 5: Vanguard's new CIO Greg Davis talks bonds, stocks and costs

Having just stepped into the role, this veteran of the firm now oversees $3.8 trillion in assets in more than 300 mutual funds and exchange-traded funds.

Tech companies deploy behavioral finance tools for advisers

They seek to turn knowing more about clients into growing more revenue.

Retirement planning for women

Longer lifespans and lower savings require creative income strategies.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print