Believe it or not, both short and long term interest rates are at a 5,000 year low. And no, that is not a typo. No wonder there is a global search for income! On this week’s WEALTHTRACK we are discussing how to find reliable income producing investments for retirement. Thornburg Investment’s Five star rated municipal bond manager, Chris Ryon and fixed income guru Martin Fridson reveal their secure income strategies.
CONSUELO MACK: This week on WEALTHTRACK, as sources of income either dry up or become too expensive our intrepid guests , five- star rated municipal bond fund manager Chris Ryon of Thornburg Investment Management and fixed income guru, Martin Fridson of LLF Advisors find streams of income in out of the way places, next on Consuelo Mack WEALTHTRACK.
Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. As a journalist I am the fortunate recipient of research from some of the financial industry’s top firms. One of the headlines that caught my attention recently came from Bank of America Merrill Lynch. It read: “The Lowest Interest Rates in 5000 Years.”
I knew that rates were at record lows but I had no idea that it went back five millenia. Here’s the chart. Yup, it starts at 3000 BC. It shows both short term and long term interest rates and it takes us, in a very compressed fashion, to the present 5000 year low. That’s what I call putting today in historical context!
It is no wonder that there is a global search for income. Of course not all interest rates are trading at record lows. Indeed some have been going up, especially where there is trouble.
Take triple tax exempt municipal bonds issued by Puerto Rico, whose credit rating was reduced to junk status last year. The U.S. territory is the third largest municipal bond issuer in the country, after California and New York despite the fact that its population is the size of Oklahoma’s and its GDP is smaller than that of Kansas. Unfortunately and not surprisingly, it is broke, which is why its rates have soared.
But issuers such as Puerto Rico and Greece are the exception not the rule. Government and corporate bonds have been in a three decade bull market, driven higher as interest rates fell, which led stock investor Warren Buffett to opine as early as 2012 that “Bonds should come with a warning label.”
Should they? Where else can you go for income? This week’s guests are two income pros.
Martin Fridson is the Chief Investment Officer of Lehmann Livian Fridson Advisors, a wealth management firm specializing in income investing that he co-founded in 2013. Fridson is a recognized expert in fixed income. Once dubbed the “Dean of the high yield bond market” he was the youngest person ever inducted into the fixed income analysts society hall of fame. Christopher Ryon is a Municipal Bond Portfolio Manager at Thornburg Investment Management. Among the multiple funds that he manages is the Limited Term Municipal Fund, rated five-star by Morningstar. Before joining Thornburg in 2008 Ryon was the head of the Long Municipal Bond Group at Vanguard Funds where he oversaw the management of more than $45 billion dollars in 12 intermediate and long-term muni funds. Thornburg is a sponsor of WEALTHTRACK but Ryon is here because of his independently recognized track record.
I began the interview by asking both guest if bonds should indeed now carry a warning label?
CHRIS RYON: Bonds have an important place in a well-diversified portfolio. Yes, we’re at the tail end or what appears to be the tail end of a 30-year bull run in bonds, but investors should realize there’s a reason to keep them in their portfolios. You want to have stocks, bonds, real estate, cash even though it doesn’t yield a lot, and the reason being is it provides ballast in case we’re wrong and rates stay at a low level for a prolonged period of time, and they also move counter cyclically to your stock portfolio. So in a well-diversified portfolio they have an important place even if in today’s environment they are overvalued.