Craig Elder, Senior Fixed Income Research Analyst at Baird, recently discussed fixed income’s better-than-expected performance in 2014 with The Bond Buyer. Following is an excerpt from the article, “Baird: Fixed Income Better Than Expected in '14”
Craig Elder, director at Robert W. Baird & Co., came out with a research report earlier this month breaking down why fixed-income in 2014 performance was better than most anticipated.
According the Elder, the key was to take duration risk, as longer dated fixed-income worked whether it was in the safety of long-dated Treasuries as the 30-year Treasury bond total return was 29.4% or in lower-rated fixed rate preferred stocks with a 15.4% total return for the year.
"Credit risk was not a major factor in determining performance, but investors needed to avoid lower-rated high yield as CCC & lower return were negative 2.6% and single B-rated returns were an anemic 1.3% in 2014," Elder wrote in the report. "Energy debt issues, which are about 15% of most high yield indices, were hit by the collapse of crude oil and natural gas prices."
Elder also mentioned that the big fixed-income performance came from preferred stocks with a 15.4% total return, followed by convertibles at 9.997% and municipal bonds at 9.78%. The weakest performance was in leveraged loans and high yield at 1.82% and 2.50%, respectively.
Read Craig Elder’s research note, “2014 Fixed Income Review”
Read the article (subscription may be required for full access)