Corporate Bond Diversification

[savory]

Still fairly new to the Corporate Bond purchasing efforts vs funds. I am curious about your thoughts in terms of placing too many dollars in one corporate bond holder. For example, I have purchased more Royal Bank of Canada bonds than others in my portfolio. I see more that I would like to purchase but am concerned about too much concentration. There are other bonds that present themselves as alternatives but still not the same. So, my question is do you develop your portfolio with the idea of limiting the concentration of funds in any single bond holder for a 5 year or so time frame? Or do you purchase the best opportunity assuming the rating and any other knowledge of the bond holder makes it safe enough and the best deal is pursued? I am sticking mostly with A rated bonds and typically do not buy the lowest end of the A ladder. Thanks

 

[jazz4cash]

It’s generally pretty easy to find similar rates at comparable institutions IME. I never thought about too much in one particular bank but I do think about too much in the banking sector so I use other fincos (like insurance) to diversify. I generally only have a year or two of of expenses in a particular issue (tiny steps on a fixed income ladder). I don’t believe you can really diversify using individual bonds but I am very comfortable accepting single issue risk on investment grade bonds.

 

[OldShooter]

As individuals, DW and I don't buy corporates because the work to select and manage a well-diversified portfolio is more than we want to deal with.

For reference we are on the investment committee for a small nonprofit with about $2M in fixed income in a $5M total portfolio. By policy we do not buy bond funds except as short-term parking places. Of the $2M the FA has maybe 25% in govvies with the rest in investment grade corporates. Most positions are $10K or a bit more, giving us diversification across over 100 issuers. The FA's software analyzes the portfolio to verify and manage diversification and to alert on ratings changes. His advantage is that he is doing this for multiple other customers, so his time and cost is shared.

 

[pb4uski]

For the corporate bond portion of my fixed income portfolio, I generally limit the total invested in any single credit to 1% of total portfolio value. (I am over that in a couple highly rated credits).

I also only invest in investment grade corporate bonds and usually higher rated corporates. At this writing 63% are A or better and I have 20 positions.

A+​	7%​
A​	40%​
A-​	16%​
A or better​	63%​
BBB+​	15%​
BBB​	4%​
BBB-​	19%​
Total​	100%​