How are bonds doing? Nobody seems to know.
Across our portfolios for clients, at any given time, fixed income in the form of bonds or preferred shares will make up somewhere between 30 per cent and 60 per cent of assets. That is a lot of money.
Multiply that by millions of investors and even for retail clients, that represents trillions of dollars invested outside of what most view as the stock market.
The unanswered question for many investors is – how are my bonds doing?
This question is interesting because when dealing with clients, we find that their natural benchmark is the TSX. They know if the TSX is up or down. Some can tell you "it is at 13,850 today". What they don't usually know, unless we tell them, is that the DEX bond universe was down 0.09 per cent year to date.
For your information, the DEX Universe All Government Bond index is down 0.36 per cent. The DEX Universe All Corporate Bond index is up 0.61 per cent. The DEX Long Term Bond Index is down 1.36 per cent. The DEX Short Term Bond Index is up 0.44 per cent.
To find bond index information, one of the best places to look is the PC Bond Analytics website. It is a business unit of the TMX Group, which runs the Toronto Stock Exchange.
To find preferred share information on the S&P/TSX Preferred Share Index, you can visit Standard and Poor's here. The Preferred Share index has a 0.33 per cent return year to date.
To add to the list, the S&P500 in Canadian dollars returned 2.95 per cent in the first quarter.
The one index that everyone seems to know is that the TSX Composite index returned 5.60 per cent in the first quarter of 2011.
The question is, why are all of those indexes (outside of the stock market) so hard to learn about? It isn't an obscure investment. There are 40 bond funds in Canada that have over $1-billion invested. The TD Bond Fund has over $9-billion in assets. The RBC Balanced Fund has $8.4-billion in assets, with a third of that currently invested in bonds.
I can watch BNN all day until I am dizzy with stock talk and ticker symbols, but I usually can't tell if bonds are up on the month.
The problem with this lack of information is that many investors get too carried away with the TSX numbers and assume that if they aren't beating the TSX then they are not doing well.
We often remind clients that the TSX has 79 per cent in financials, energy and materials. This is a concentrated index that carries higher-than-average risk. This isn't the appropriate benchmark for most investors.
If I had to guess, the reason you don't see much or hear much about bonds and preferred shares is that they are boring. In some cases, they are harder to understand than stocks. Because there is usually more buying and holding, the investment industry may not make as much money on bonds and preferred shares. These are just guesses.
The key point is that this performance information is key to many investors to get a sense of how they should be doing. These indexes and their performance numbers should be widely reported on all business media – but today, it simply is hard to find.
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Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.