Barron's had a promisingly titled article Volatility Is Back in the Stock Market. Here’s the Zen Way to Handle It but unfortunately it was very thin.
Here's advice from Christine Benz
Take the annual amount you’ll need to withdraw from your portfolio in retirement, multiply it by 10, and keep that amount in short-term and intermediate term high-quality bonds. Having 10 years’ worth of living expenses insulated from market movements provides peace of mind.
I don't think I've ever heard ten years worth of expenses hiding out in fixed income but ok, whatever helps someone avoid panic. I'd be more in the two-three year timeframe. Even stranger was the suggestion of using DFA Core Fixed Income ETF (DFCF) which is similar to iShares Aggregate Bond ETF (AGG). DFCF does appear to be a better mousetrap but...
...if the idea is to avoid the ups and downs of markets, why would someone want that sort of duration. Not good.
The ETF IQ weekly letter tried to explore whether current events in the credit market related to Tricolor and First Brands might mean trouble for ETFs. It isolated the iShares Floating Rate Loan Active ETF (BRLN). It said that BRLN "has climbed nearly 30% on a total return basis over the past three years" compared to just a 16% gain for AGG implying that BRLN might be over extended.
The 30% cumulative total return cited by Bloomberg has been all yield. If the market that BRLN has been paying 4% instead of 8% +/- then the cumulative total return would have been more like 15%. Credit more broadly could certainly be hitting some sort of snag but the analysis done in this article won't be a contributing factor.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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