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Dorsey to Panelists: Why the Investor Rush to Bonds?

Leuthold's Doug Ramsey, Ariel's Charlie Bobrinskoy, and Tom Forester of Forester Value discuss the performance trends, fund flows into, and outlook for fixed income.


Dorsey: I wanted to ask you a question that's befuddled me all year. Bond fund flows, obviously, have been just off the charts this year and last year. I mean, investors are pouring money into bonds as if the bond market was going to shut down tomorrow, and they can never buy another one. This has befuddled me because I think if I can buy a 3.5% fixed coupon, an investment grade corporate, or I can buy 7% to 8% rising coupon, in terms of a free cash yield, the math doesn't seem real tough to me. I don't have a great explanation, other than performance-chasing for this. Do you have any insight you want to give me?

Forester: Well, one of our stocks that we like and has done well is Altria, and they've been paying a 6%, 7% yield forever, and they're only paying about 10 to 11 times earnings, something like that, and so for us, we like that a lot better than paying 2.5% or 3% now, but 2.5% for 10-year Treasuries. We think that the fixed income world has become, on a risk-reward basis, all risk, no return. So, we tend to shy away from that.

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Pat Dorsey does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.