New Research!                             Managed High Yield Bond Model

 

Background and Description


This model has been used by us since 1998 as a tool for our balanced portfolios, helping us choose whether to own high-yield or Govt bonds. We had always felt it was highly effective, but there was little demand for such a model trading between these two asset classes. However, in the wake of the Fed's Zero Interest Rate policy, and with investors reaching for the yield oflower rated bonds,  a managed high yield product seems timely. High Yield bonds can be quite volatile, especially during economic contractions. While the yields on these bonds are signifcant, normally 5-7 percentage points higher than comparable government bonds, they can fluctuate signifcantly in price. With those investors seeking yield also tending to be highly risk averse, a model than can offer the benefits of high-yield bonds while offsetting some of the risk during periods of volatility or price weakness is an attractive investment choice.

 

The Model is designed to hold high-yield bonds when the conditions for them are favorable, and their price action is trending favorably. At such times the client assets will be invested in high-yield bond funds for income and capital appreciation. When the model signal weakens, and Gov't Bonds become stronger, assets will be moved into intermediate government bond funds (5-7 yrs maturity), a fairly conservative holding. When conditions swing back to favorable for High Yield bonds, assets will be moved back into High Yield bond funds.

Year By Year Pro-Forma Historical Results

 

 

 

Year

 

High Yield

Bond Fund

Buy/Hold

(FAGIX)

 

Government

 Bond Fund

Buy/Hold

(FGOVX)

 

HBIR

Managed

High Yield 

Model

1983    18.54    6.07    17.44
1984    10.50    11.29  

 10.08

1985    25.54    17.74  

 18.09

1986    17.99    14.62  

 8.61

1987    1.39    1.06  

 2.88

1988    12.59    6.36  

 5.49

1989    -3.22    12.62  

 13.36

1990    -3.85    9.53  

 10.56

1991    29.82    15.96  

 28.66

1992    28.05    7.97  

 19.40

1993    24.91    12.32  

 23.05

1994    -4.61    -5.21  

-3.79 

1995    16.74    18.07  

 14.46

1996    11.41    2.08  

 6.53

1997   14.71    8.93  

 14.34

1998    4.77   8.59   

  14.48 

1999    13.27    -2.25  

 10.63

2000    -9.43    12.63  

 12.43

2001    -4.66    6.72  

 -0.85

2002   -0.40    10.93  

13.73 

2003    39.13    2.22  

 39.01

2004    12.57    3.60  

 6.43

2005    5.04    2.42  

 1.67

2006    13.08    3.55  

 12.58

2007    3.78    7.89  

 11.87

2008    -31.90    11.01  

 13.29

2009    72.14    1.30  

 60.60

2010    17.13    5.11  

 7.42

2011  
-0.80
   5.96  

 7.37

2012   16.40    2.68   9.07
2013   9.71   -2.58   6.76
2014   6.13   5.43   8.76
2015   -0.92   0.50   4.56
2016   10.71   1.05   9.09

Risk/Reward Analysis

 

High Yield Bonds Buy & Hold

8 Down Years 

Worst Year  -31.90% in 2008

Average Annual Return  8.36%

 

Government Bonds Buy & Hold

2 Down Years

Worst Year  -5.21% in 1994

Average Annual Return  7.65%

 

Managed High Yield Model

2 Down Years

Worst Year  -3.79% in 1994

Average Annual Return  14.14%

 

Above Managed High Yield Model Results do not reflect any Management Fees. Subtracting the affect of a 1.5% Investment Management Fee would reduce the annual return to 12.64%, still several percentage points above either bond category on a buy and hold basis.

  

In Summary, the Managed High Yield Bond Model has a return profile greater to High Yield Bonds in terms of Average Annual Return, but it has a risk profile similar to Government Bonds in terms of down years and magnitude.

Hamilton-Bates Investment Research Disclaimer

The calculations of  these results reflect what would have actually occurred had an investment moved
according to the strategy’s respective buy and sells signals. Data for the calculation of performance
was obtained from sources believed reliable, but whose accuracy is not  guaranteed. There may be variances in actual returns for a client’s account vs.  the stated returns due to transactions that may take place in an account such as  additions and/or withdrawals, trading restrictions imposed by the custodian, or  account inception dates. The stated returns include the reinvestment of  dividends and capital gains. All mutual funds charge shareholders internal  management fees and other fees, etc. Please refer to each fund’s prospectus for  details. All of the above strategies include the use of money-market funds. An  investment in a money-market fund in neither insured nor guaranteed by the U.S.  Government, and there can be no assurance that the fund will be able to maintain  a stable net asset value of $1.00 per share. Because markets are influenced by a  variety of changing conditions, future performance based on prior results should  not necessarily be assumed. The period covered was of generally rising prices  and may not reflect material economic and market factors that may effect the Advisor’s decisions in the future. It should be noted that the possibility of  loss exists along with the potential for profit. Past performance does not  guarantee future results.  Please invest only after careful consideration of your needs, objectives, and risk tolerance.