NZ Fund Managers

[Snoopy]

But if you ask me, in times of high inflation the last thing I would want to hold are bonds, especially corporate bonds where profit margins are normally squeezed out during recessionary times. Your best protection against the eroding power of inflation is to own companies that have the ability to raise prices without hurting their profit margins. Now if fixed term rates on cash holdings were around 10% a year, ok then things stack up as you really need cash rates above the inflation rate. But anything less than the inflation rate is a waste of time - net after paying taxes.

I am not going to disagree with your comment above SBQ. My own view is that an offered bond rate should be a couple of percentage points above the dividend rate offered by the same company. This is as compensation for holding a fixed interest investment that has an equity like downside risk, but with most of the compensating upside risk that an equity investment in the same company would have, now removed. Perhaps I should disclose that I do not hold any bond investments myself, and I am not necessarily recommending that others do so either. I do have some bank term deposits though, which I see as more secure than company issued bonds.

However, there are some instances where owning bonds is necessary. like if you are acting as a trustee for a defined purposes account for example. Another instance is where you are invested in a 'balanced fund' which has a mixture of shares and bonds. Although you may not be invested in bonds as a 'headline act', they are there in your portfolio nevertheless.

My main point in investigating bond managers then, is to try and understand how various bond managers styles influences returns. Or paradoxically if these managers 'have no style' and are just creating 'index hugging returns.' I think it is worth knowing this stuff, even if 'investing in bonds' is not part of your own core investment philosophy. But if you don't want to know, then you don't have to read it!

SNOOPY