War Room 28 March 2012 Fixed Income in 2012: Are Bonds Still En Vogue?
2010 Fixed Income March 23rd Corporate Bonds Webinar
-
date post
14-Sep-2014 -
Category
Documents
-
view
1.087 -
download
0
description
Transcript of 2010 Fixed Income March 23rd Corporate Bonds Webinar
Amir Homayoun Rafizadeh - wadvisor
Things to know about Corporate Bonds
Amir Homayoun Rafizadeh, MBAKruse Asset Management
Co-Founder of National Business Owner Advisory Council
Managing Director of Client Educationalso known as “wadvisor” presents:
Reducing your income tax’s
How good is your investment advisor?
Reducing your estate & income tax’s
Best Chicago financial advisor wadvisor
What your advisor doesn’t tell you
Mutual funds are expensive
Advanced IRA planning expert wadvisor
Amir Homayoun Rafizadeh - wadvisor
Disclosures:
Past performance does not guarantee future results. The following material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument. The information here should also not be used or relied upon for legal, tax and investment advice. Please
consult your attorney, tax advisor or financial advisor for further consultation. The views discussed here may not be appropriate for all
investors. Please conduct your own due diligence and research. Any forecasts and charts contained here are for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation.
Opinions, estimates, forecasts and any other statements or financial forecasts/market commentary are based on current conditions and are
subject to change without notice. The strategy is developed by Stuart Kruse, President and Founder of Kruse Asset Management. QVP is a
trademark of Kruse Asset Management.
Amir Homayoun Rafizadeh - wadvisor
An Interview with Matt Kraus, the bond Guru
Amir Homayoun Rafizadeh - wadvisor
Fixed Income Webinar Dates2010
1st
WednesdayLinkedIn & NetworkingStrategies
Week1
1st
ThursdaySmall Business best practices
Week2
Week3
Week4
2nd
ThursdayLooking
for Alpha
3rdThursday
Private businessgrowth strategies
4thThursday
In theworks
1st Tuesday
Asset Allocation series
2nd Wednesday
In theworks
2nd Tuesday
In theworks
3rd WednesdayAdvanced
wealthmanagement
3rd TuesdayGoogle
strategies
4th Wednesday
In theworks
4th Tuesdayof everymonth
Amir Homayoun Rafizadeh - wadvisor
2010 Webinar topics on Fixed Income (11am Central)
2010
Jan26th
Feb23rd
Mar23rd
Apr27th
May25th
Jun22nd
Jul27th
Aug24th
Sep28th
Oct26th
Nov23rd
Dec28th
Yield curve and
bond market updates
Things to know about
corporate bonds
Essential tips for
municipal bonds
Individual bonds vs.
bond mutual funds
Why bonds alone won’t
make a portfolio
safe
How high yield
bonds can increase
yield
Advantages & disadvantages
of TIPS for 2010 and beyond
Why owning
treasuries can be very
different this decade
Hedging strategies
that institutions
utilize
Strategies to enhance your fixed
income portfolio
yield
Things they don’t
tell you about
closed end funds
Bond market
and inflation outlook
Amir Homayoun Rafizadeh - wadvisor
Things to know about corporate bonds
In 2009 all we heard was corporations are making more profits and there has been a significant improvement in
corporate earnings. Does that translate to a better pricing for their bonds? Matt and I will discuss the
environment and explore which industry sectors and companies (and their bonds) will benefit the most from
any changes in interest rates.
https://www2.gotomeeting.com/register/557640882
(Mar 23rd - 11 am Central)
Amir Homayoun Rafizadeh - wadvisor
Corporate Bonds
What Investors need to know
By Matt Kraus
Kruse Asset Management
Amir Homayoun Rafizadeh - wadvisor
What is a Corporate Bond?1. Debt security issued by corporations.
A. F.I securities created for purpose of raising cap.
B. Type of loan agreement between issuer an investor.
2. Backing for bond is payment ability of corporation.
A. Money earned from future operations
B. Physical assets of company.
Amir Homayoun Rafizadeh - wadvisor
What is a Corporate Bond cont’d3. Corporate bonds are issued in blocks of $1000 par
value.
4. Most have a set coupon payment structure
and a set maturity date.
5. Call provisions
A. Bonds will state when and at what price.
B. Issuers discretion
6. Corporate bonds maturities
A. 1-30 year range
B. Less then 1 year , commercial paper.
Amir Homayoun Rafizadeh - wadvisor
What is a Corporate Bond Cont’d7. Corporate bonds fully taxed.
A. HNW investor should use tax deferred accounts to hold corporate bonds.
Amir Homayoun Rafizadeh - wadvisor
Pricing and Ratings1. Corporate bonds; Higher nominal yield than US
Govt and Municipal Bonds
A. Higher risk = Higher yield.
B. Corporate Bonds fully taxed; Govt and Muni have some tax exemptions.
2. Bond Ratings
A. Moody’s and Standard & Poor's(SP)
B. Chance issuer defaults on prin or int.
Amir Homayoun Rafizadeh - wadvisor
Moody and S&P ratingsMoody's S&P Meaning
Investment Grade Bonds
Aaa AAABonds of the highest quality that offer the lowest degree of investment risk. Issuers are considered to be extremely stable and dependable.
Aa1, Aa2, Aa3 AA+, AA, AA-Bonds are of high quality by all standards, but carry a slightly greater degree of long-term investment risk.
A1, A2, A3 A+, A, A- Bonds with many positive investment qualities.
Baa1, Baa2, Baa3 BBB+, BBB, BBB-Bonds of medium grade quality. Security currently appears sufficient, but may be unreliable over the long term
Non Investment Grade Bonds (Junk Bonds)
Ba1, Ba2, Ba3 BB+, BB, BB-Bonds with speculative fundamentals. The security of future payments is only moderate.
B1, B2, B3 B+, B, B-Bonds that are not considered to be attractive investments. Little assurance of long term payments.
Caa1, Caa2, Caa3 CCC+, CCC, CCC- Bonds of poor quality. Issuers may be in default or are at risk of being in default.
Ca CC Bonds of highly speculative features. Often in default.
C C Lowest rated class of bonds.
- D In default
Amir Homayoun Rafizadeh - wadvisor
5 Things to Consider Before Buying
1. What is the credit rating ?
A. Confident company will pay?
B. Possible downgrades in near future.
2. What is the I.R.(or coupon)
A. Is it high enough to compensate you for risk?
B. What is spread over treas.
C. Is it on a attractive part of yld curve.
Amir Homayoun Rafizadeh - wadvisor
5 Things cont’d3. Total return investor A. Liquidity of issue B. Laddering Portfolio not as much as a
concern.4. Does the issue fit in with diversification
goals of portfolio? A. Maturity. B. Industry.5. Structure of Bond. (Callable, reset options,
etc.)
Amir Homayoun Rafizadeh - wadvisor
HNW and the Ladder1. Rationale.
A. S.T. maturities –high degree of price stability- lower yields.
B. L.T. maturities- higher yield – more price volatility.
C. Spreading out maturities of portfolio.
1. price stability of short end.
2. Extra yield of long end.
Amir Homayoun Rafizadeh - wadvisor
Minuses of Corporate Bonds
1. Not always best fit.
A. Higher nominal rates then Govt or Muni doesn’t mean better fit.
2. Tax implications.
3. Secondary markup from dealers.
A. Try and buy new issue.
4. Best corporate bonds are sometimes callable.
Amir Homayoun Rafizadeh - wadvisor
Pricing and YieldsThe following chart shows you an example of some typical spreads of corporate bonds
over treasuries. (A/O 3/2006)
Rating 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 30 yrAaa/AAA 14 16 27 40 56 68 90
Aa1/AA+ 22 30 31 48 64 77 99
Aa2/AA 24 37 39 54 67 80 103
Aa3/AA- 25 39 40 58 71 81 109
A1/A+ 43 48 52 65 79 93 117
A2/A 46 51 54 67 81 95 121
A3/A- 50 54 57 72 84 98 124
Baa1/BBB+
62 72 80 92 121 141 170
Baa2/BBB 65 80 88 97 128 151 177
Baa3/BBB-
72 85 90 102 134 159 183
Ba1/BB+ 185 195 205 215 235 255 275
Ba2/BB 195 205 215 225 245 265 285
Ba3/BB- 205 215 225 235 255 275 295
B1/B+ 265 275 285 315 355 395 445
B2/B 275 285 295 325 365 405 455
B3/B- 285 295 305 335 375 415 465
Caa/CCC+ 450 460 470 495 505 515 545
Amir Homayoun Rafizadeh - wadvisor
The following graphs give you an idea of the yield of corporate bonds and treasury bonds a/o 3/01/2010
Us Treasury And Corporate Graphs
Amir Homayoun Rafizadeh - wadvisor
Yield Curves over 5years
Amir Homayoun Rafizadeh - wadvisor
Historically Corp. vs. Treasuries1. 10yr+ AAA bonds vs. Treasuries on average 90
basis pts over.
2. BBB bonds trade on average 210 basis pts over.
Amir Homayoun Rafizadeh - wadvisor
Govt. vs. Corp.
Amir Homayoun Rafizadeh - wadvisor
InterNote1. Registered brand name of Incapital LLC.
For debt issued using its underwriting and distribution platforms.
2. Created for smaller individuals(buy and hold).
3. Issued by both large and small corporations.
4. Most have a survivor option and noncallable.
5. Best used for buy and hold(laddering) strategies.
6. Internote dealers provide a secondary market.
Amir Homayoun Rafizadeh - wadvisor
Recap1. Most efficiently used by HNW investors in tax
deferred accts.
2. Fully taxed at all levels.
3. Understand the dynamics of the issue.
4. Know how it is priced over treasury bonds.
5. Check and see how the underlying stock price is performing.
6. Corporate bonds, not highly correlated to junk or treasury bonds- good diversification tool.
Amir Homayoun Rafizadeh - wadvisor
Recap
7. Treasury/corporate spd , shrinks or expands more on econ. Conditions then I.R. move.
8. Another avenue for the HNW investor to diversify their portfolio and create a dynamic and income producing portfolio.
Amir Homayoun Rafizadeh - wadvisor
CONTACT INFO
• Matt Kraus
• Managing Director
• Kruse Asset Management
• 312 627 0072
Amir Homayoun Rafizadeh - wadvisor
Why owning treasuries can be very different this decade
Treasuries returned 13.7% and -3.6% in 2008 and 2009 respectively. With 61% foreign ownership you should carefully review your future decisions. The Federal
reserve printed record amounts of new debt during 2009. How will this impact your future returns? Pros and cons of treasury ownership discussion with Matt and I. Join
us.
https://www2.gotomeeting.com/register/469064539
(Apr 27th - 11 am Central)
Amir Homayoun Rafizadeh - wadvisor
Contact“Helping America one business, one non-profit and one family at a time“Amir Homayoun Rafizadeh, MBAManaging Director of Client EducationKruse Asset Management – [email protected]://www.linkedin.com/in/wadvisor
Matt KrausManaging Director of Fixed [email protected]://www.linkedin.com/in/krausm
Amir Homayoun Rafizadeh - wadvisor
Asset management with a difference
EthicsExpertis
eEducati
on