Perfect prices and timing

In the dynamic world of investing, arming yourself with current and factual information is key. Investors sometimes fall in the trap of searching for a “unicorn”, the perfect bond at the perfect price at the perfect time, and so may end up waiting in vain. Additionally, decisions made on outdated or incomplete information can lead to missed opportunities or worse, losses. This holds particularly true for an investor seeking fixed-income securities. Using timely and accurate current data can significantly impact securities chosen for your investment portfolio and the overall outcome and return.

Bonds are a staple in many investors' portfolios. Understanding present market conditions and economic indicators will aid you in choosing the best bond for your individual portfolio. The current interest rate environment is a factor that should be considered when making your bond purchase. Many investors are wary of purchasing a bond above par value because of the capital loss at call or maturity, however if your focus is income generation then a premium bond may better suit you. A premium bond can offer higher coupons and depending on their duration can be less sensitive to fluctuating interest rates. When rates are rising these bonds retain more of their value than bonds paying a lower interest rate. In the inverse situation, when interest rates decline, you have the potential for capital appreciation as there will be increased demand for these higher coupon bonds.

Geopolitical trends are a second indicator investors can use when researching securities for their portfolio. Identify trends and economic indicators for specific regions to ensure your portfolio is not over concentrated in one region. Emerging industries may also present opportunities to invest in certain geographical sectors. Regulatory changes and geopolitical tensions can also affect issuers of a bond, so it is always wise to keep abreast of what is happening in the bond issuer’s country. If you are an investor that favours municipal, and government issued bonds this will be a key element in choosing securities for your portfolio.

When researching potential bonds to add to your portfolio knowing the yields present in the market will aid you with choosing your ideal instrument. An awareness of current yields available across different maturities and bonds of varying credit quality will allow an investor to know if their desired yield falls within their risk appetite or is not aligned with current market conditions. If an investor has a specific yield target, they may have to adjust the level of risk they are willing to accept or pivot their timeline.

As always, we recommend you monitor your portfolio. By utilising accurate data and seeking the guidance of a licensed financial advisor, you will be in a better position to identify opportunities in the market and effectively choose the best strategy to achieve your financial goals.

Christine Rankine is the AVP-Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at info@sterlingasset.net.jm.