What have we been doing about portfolio income in the face of the changing
environment?
First, we take the view that interest rates are more likely to rise than decline.
We reduced total bond exposure, shortened duration for the bonds we have, and
increased net credit risk within bond holdings. Bonds prices fall when rates
rise. Shorter-term rates may be more stable and shorter-term bonds fall less
than longer-term bonds for any given increase in rates. Treasuries don't pay
enough, and the improving business conditions that normally accompany rising
interest rates, decrease default risk on lower quality credits, reducing the
yield premium they require, likely resulting in stronger prices.
Second, we replaced the portfolio income we formerly derived from bonds with
dividend income -- income that is likely to grow, with capital appreciation
potential. This is preferable to bonds for which income does not grow and for
which capital losses now seem likely.
Disclaimer: Opinions expressed in this material and our disclosed positions
are as of July 5, 2010. Our opinions and positions may change as subsequent
conditions vary. We are a fee-only investment advisor, and are compensated
only by our clients. We do not sell securities, and do not receive any form
of revenue or incentive from any source other than directly from clients. We
are not affiliated with any securities dealer, any fund, any fund sponsor or
any company issuer of any security. All of our published material is for informational
purposes only, and is not personal investment advice to any specific person
for any particular purpose. We utilize information sources that we believe
to be reliable, but do not warrant the accuracy of those sources or our analysis.
Past performance is no guarantee of future performance, and there is no guarantee
that any forecast will come to pass. Do not rely solely on this material when
making an investment decision. Other factors may be important too. Investment
involves risks of loss of capital. Consider seeking professional advice before
implementing your portfolio ideas.
IMPORTANT NOTE: We are a Registered Investment Advisor. We do not sell
investments or control client assets. We are professional advisors compensated
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do not warrant the accuracy of those sources or our analysis. Research, data
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general in character and are not advice specific to any individual investor.
Copyright 2008-2012 by QVM Group LLC All rights reserved.
Restructuring
Portfolio Income
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