U.S. News & World Report - The Ultimate Guide to Bonds

May 7, 2020 – U.S. News & World Report draws upon the expertise of Saturna Capital portfolio manager Bryce Fegley in “The Ultimate Guide to Bonds,” part of a series of Investing Guides published in their Money section. Author Debbie Carlson quotes Fegley on a number of topics, including types of bonds, bond mutual funds versus individual bonds, and when to sell.

Investor interest in bonds, particularly US Treasurys, surged as the coronavirus pandemic shocked global markets in March and sparked high volatility. “High-quality bonds, such as high-grade corporate issues and especially US government bonds, can be very useful for diversifying the risks of owning stocks. Adding bonds to a portfolio can significantly dampen volatility and losses of values,” said Fegley.

“During the Great Depression, US government bonds were among the only investments that retained their value as the government was one of the only institutions that could be trusted to make payments in a hostile economic environment.”

On the pros and cons of bond funds versus individual bonds, Fegley says sometimes individual bonds may better serve an investor’s needs. “Investors who require cash flows to match future liabilities may need the flexibility of individual bonds,” he said.

Carlson also asked Fegley what considerations should factor into the decision to sell bond investments. She cites the risk of default as one obvious sell trigger for holders of individual bonds. Fegley broadens the discussion to portfolio strategy. “Some investors, including managers of bond funds, follow strategies that regularly involve selling bonds before they mature.” For example, a manager may buy an undervalued corporate bond and then sell it when it appreciates, similar to equity investing.

Fegley says expected interest rate fluctuations can also convince a portfolio manager it’s time to sell. “If you think long-term interest rates will rise faster than short-term rates, you ‘might sell longer duration bonds and use the proceeds to purchase shorter duration bonds.’”

Bryce Fegley, MS, CFA^®, CIPM^®, Senior Investment Analyst, joined Saturna Capital in 2001. He is portfolio manager of Sextant Global High Income Fund and Sextant Core Fund.

For more information about bonds, read Bryce Fegley’s “How Long Is Your Bond? Bond basics you’ll need to know for the duration”