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Key Dates – Fixed Income on Sale – Individual Bonds


Week in Review
Last week was slightly negative for the U.S. stock market. The overall market (Russell 3000) was down 0.17%, with large-caps (S&P 500) falling 0.11% and small-caps (Russell 2000) up by 0.01%. International stocks meanwhile outperformed last week. Developed markets (MSCI EAFE Index), such as Europe and Japan, lost 1.73%. Emerging market stocks (MSCI Emerging Markets), which include China and Brazil, gained 1.04%. Meanwhile, the bond market was essentially unchanged with only a small gain for the week. As of the end of last week, bonds have still been outperforming the stock market so far this year. The 10-year Treasury bond ended last week with a yield of 1.92%.

See you in September
The shockingly weak payroll report released on June 3 not only put a Federal Reserve (Fed) rate hike on hold for June but likely ruled out July too. But even if it appears that the Fed has the summer off, we as portfolio managers don’t. Yes, volume will be lighter as people head out on vacation, but events around the world go on, and markets will react accordingly. Rest assured, CLS will be minding the store and making investment decisions accordingly.

Here are some key dates, events, and potential catalysts for market volatility to watch for as the summer doldrums kick in:

  • June 15: Federal Open Market Committee (FOMC) announcement
  • June 23:  UK referendum on continued EU membership
  • July 8:  U.S. Labor Department’s release of monthly employment figures
  • July 15: Bureau of Labor Statistics’ report on Consumer Price Index (CPI) data
  • July 18-21: Republican National Convention in Cleveland
  • July 25-28: Democratic National Convention in Philadelphia
  • July 27: FOMC announcement
  • July 29: Bureau of Economic Analysis’ release of second quarter GDP data
  • August 5: U.S. Labor Department’s release of monthly employment figures
  • August 16: Bureau of Labor Statistics’ report on CPI data

What’s On Sale?
As a long time “fixed income guy,” my bias has tended to be more conservative by nature. But as an investor, I like to buy things when they appear cheap. So, late last year and early this year, I increased high-yield bonds and even some Master Limited Partnerships (MLPs). Why? I believe the commodity route was somewhat overdone.

At CLS, we believe in bond funds, which include fixed income exchange traded funds (ETFs) and, secondarily, closed-end funds (CEFs). In short, bond funds are more liquid and diversified, and they provide potentially higher risk-adjusted performance. Diversified bond funds can tap into more fixed income segments, making them more likely to achieve higher returns at lower volatility over time. This has been the case so far in 2016. Additionally, ETFs are more liquid. They’re easier to purchase and particularly easier to sell than individual bonds.

Diversification is greater when holding a combination of securities in a variety of fixed income class segments, mitigating credit risk and providing diversification for a relatively small investment minimum. Bottom line, when it comes to fixed income, funds are preferred over individual securities for many investment portfolios.

When to Buy Individual Bonds
For some investors, having CLS select individual bonds may make more sense. I do this for many investors currently. Relying on CLS offers increased flexibility in what to buy and sell. Using munibond separate accounts, we can, to some extent, pick and choose bonds we like from a credit, maturity, coupon, and yield perspective, and we don’t have to own names we don’t like.

By owning a portfolio of individual bonds, investors can better manage cash flows. They are familiar with income streams and know when the bonds mature. While risks can be higher than many investors realize, holding bonds to maturity provides a level of comfort as investors can expect their principal back in full on that date. Additionally, depending on the individual bonds, overall costs can be lower since the investor doesn’t have to pay for the expense, or bid/ask spreads, of the fund or the embedded bid/asks of the underlying bonds within them.

Generally, I advise clients to go this route if they plan on holding bonds to maturity. Liquidity (depending on the size and name) can be dismal, especially when selling under duress.

Feel free to reach out to me if you would like to discuss further. Thanks for reading. Enjoy the summer!


The S&P 500® Index is an unmanaged composite of 500-large capitalization companies. This index is widely used by professional investors as a performance benchmark for large cap stocks. The Russell 3000 Index is an unmanaged index considered representative of the U.S. stock market. The index is composed of the 3,000 largest U.S. stocks. The Russell 2000® is an index comprised of the 2,000 smallest companies on the Russell 3000 list and offers investors access to small-cap companies. It is a widely recognized indicator of small capitalization company performance. The MSCI EAFE International Index is a composite index which tracks performance of international equity securities in 21 developed countries in Europe, Australia, Asia, and the Far East. The MSCI All-Countries World Index, excluding U.S. (ACWI ex US) is an index considered representative of stock markets of developed and emerging markets, excluding those of the US. The Barclay’s Capital U.S. Aggregate Bond® Index measures the performance of the total United States investment-grade bond market. The Barclay’s Capital 1-3 Month U.S. Treasury Bill® Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. The Equity Baseline (EBP) is a blended index comprised of 60% domestic equity (represented by the Russell 3000 Index) and 40% international equity (represented by the MSCI ACWI ex US Index), rebalanced daily. An index is an unmanaged group of stocks considered to be representative of different segments of the stock market in general. You cannot invest directly in an index.

The views expressed herein are exclusively those of CLS Investments, LLC (CLS), and are not meant as investment advice and are subject to change. CLS is not affiliated with any companies listed above. No part of this report may be reproduced in any manner without the express written permission of CLS. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This material does not constitute any representation as to the suitability or appropriateness of any security, financial product or instrument. CLS is not making any comment as to the suitability of any funds mentioned, or any investment product for use in any portfolio. There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Individual client accounts may vary. Investing in any security involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any specific, or diversifiable, risks associated with particular investment styles or strategies. The graphs and charts contained in this work are for informational purposes only. No graph or chart should be regarded as a guide to investing.




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