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Anybody see juicy asset classes today?
Old 10-08-2008, 12:45 PM   #1
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Anybody see juicy asset classes today?

Just taking a quick poll of what folks are eying these days. What asset classes in the market look particularly beaten down?

Here's a quick list of what I have seen, but not necessarily anything that I would want to buy.

1. Int'l REITs/Real Estate - WPS for example, down 46% YTD
2. Int'l Bonds - GIM for example - down 23% YTD
3. Int'l small cap - SCZ for example - down 44% YTD
4. Emerging mkts - VWO for example - down 49% YTD
5. High Yield Bonds - VWEHX for example - yield to maturity of 10.51%, or 756 basis points more than similar term treasuries.
6. Investment grade bonds (intermediate maturity) - VFICX for example - yield to maturity of 6.53%, or 356 basis points more than similar term treasuries.

It certainly seems that risk has been priced back into a number of asset classes that for the last few years have not carried much of a risk premuim above similar (but more risky) asset classes.

Anyone seeing any juicy asset classes today? Anyone making some bold moves into any of these asset classes? Holding off for a bit more juiciness?
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Old 10-08-2008, 11:57 PM   #2
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EM have obviously taken a beating this year (as witnessed in my portfolio). I'm going to wait a while longer but I'd like to stick a slug of money into them and hope for some serious upside volatility to come in the next year or so. It's a real rollercoaster ride but it can certainly be rewarding from these kinds of lows. Still just 5-10% of portfolio, not much more.
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Old 10-09-2008, 06:33 AM   #3
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For some reason LT TIPS seem to be yielding ~ 2.8%.
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Old 10-09-2008, 08:31 AM   #4
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Originally Posted by FUEGO View Post
Just taking a quick poll of what folks are eying these days. What asset classes in the market look particularly beaten down?

Here's a quick list of what I have seen, but not necessarily anything that I would want to buy.

1. Int'l REITs/Real Estate - WPS for example, down 46% YTD
2. Int'l Bonds - GIM for example - down 23% YTD
3. Int'l small cap - SCZ for example - down 44% YTD
4. Emerging mkts - VWO for example - down 49% YTD
5. High Yield Bonds - VWEHX for example - yield to maturity of 10.51%, or 756 basis points more than similar term treasuries.
6. Investment grade bonds (intermediate maturity) - VFICX for example - yield to maturity of 6.53%, or 356 basis points more than similar term treasuries.

It certainly seems that risk has been priced back into a number of asset classes that for the last few years have not carried much of a risk premuim above similar (but more risky) asset classes.

Anyone seeing any juicy asset classes today? Anyone making some bold moves into any of these asset classes? Holding off for a bit more juiciness?
A low price is not the same as a good value. Seems to me that asset classes that depend on leverage, like real estate, or have uncertain cashflows, like small cap stocks, are cheap but not good values. Emerging markets, OTOH, have all the cash along with compelling growth opportunities, and may be much better values - albeit with lots of volatility.

Michael
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Old 10-09-2008, 08:37 AM   #5
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I agree that high yield bonds look tempting, but keep in mind that defaults were <1% last year and 4% in a normal year. Forcasts for 2009 are around 10%, and recovery given default will also be lower if the recession is bad.
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Old 10-09-2008, 08:40 AM   #6
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I agree that high yield bonds look tempting, but keep in mind that defaults were <1% last year and 4% in a normal year. Forcasts for 2009 are around 10%, and recovery given default will also be lower if the recession is bad.
High yield bonds are best to get into after the trough of the economy has hit and the market has priced in a maximum default rate. From that point, junk bonds and small caps historically are among the first to rally.
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Old 10-09-2008, 09:01 AM   #7
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If I had free cash right now, I might start buying Vanguard's Equity Income fund (VEIPX). The 12 month yield is 4.6% and while some of its holdings have cut their dividend, the majority remain strong so I predict the yield will be at or slightly above 4.0% at the current price.
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Old 10-09-2008, 10:18 AM   #8
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Thanks for the responses - good food for thought and it may help me make money too.

Re: high yield bonds - I think a lot of default risk has already been priced into the sector. Prices have dropped a lot, and yields have spiked. Based on a quick search, it looks like current high yield spreads are at a very elevated point relative to the long term average high yield spreads. So the prices and yields have priced in a huge default assumption and poor recovery results for those that do default. Not sure of the risk adjusted return prospects of a high yield fund vs. a higher rated investment grade fund (yielding a nice YTM) or equities more generally. But it certainly seems like you are getting compensated well for taking on the perceived risks of junk.
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Old 10-09-2008, 10:22 AM   #9
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If I had free cash right now, I might start buying Vanguard's Equity Income fund (VEIPX). The 12 month yield is 4.6% and while some of its holdings have cut their dividend, the majority remain strong so I predict the yield will be at or slightly above 4.0% at the current price.
That's probably a good call. I find the idea of allocating a large chunk of a FIRE portfolio to high dividend payers (like VEIPX) assuring, because you can consume the dividends that will hopefully grow at or above the inflation rate. Definitely a low price point to be getting into this fund.
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Old 10-09-2008, 10:44 AM   #10
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If I had free cash right now, I might start buying Vanguard's Equity Income fund (VEIPX). The 12 month yield is 4.6% and while some of its holdings have cut their dividend, the majority remain strong so I predict the yield will be at or slightly above 4.0% at the current price.
That's what I do too. I have been adding to my VEIPX and Vanguard Wellington positions recently to load up on good quality, dividend paying stocks that have been beaten down with the rest of the market (I buy small chunks every time he market dips, which has been pretty much everyday in the past week). When buying Wellington, I load up on intermediate investment grade bonds as well, hoping that people regain their senses when the credit crisis eases and drive the prices back up. In the mean time I am getting a good SEC yield on both. I will add some money to VG REIT index if the yield goes back over 5%. I have been adding money to VG Wellesley (SEC yield close to 5% as well). I am not in a hurry to put new money in unhedged international equities and bonds. My international bonds have not done too badly (-9% YTD), but I am bullish on the dollar for the foreseeable future so for now I prefer investing new money right here, in the USA.
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Old 10-09-2008, 11:07 AM   #11
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I also think short term tax-exempt bonds (VWSTX) are starting to look good for the low-risk part of your allocation, since yields on tax-exempt money market funds are dropping. That fund has a tax-equivalent yield of 4.34% at the 28% marginal tax rate.
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Old 10-09-2008, 12:41 PM   #12
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I would like to add large commanding oil and gas service companies. Many of these (eg. HAL) have been absolutely demolished. In some cases they have been pushed all the way back to the early part of the decade, before the big run-up commenced.

Unless the world is going to stop running, or run on vapors this has to come back.

Ha
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