One of the Largest Canadian Fund Managers Sees Value in Bonds

As the major stock market indexes continue to rally, investors shouldn’t forget about bonds, according to Mackenzie Investments — one of Canada’s largest fund managers.

With big tech providing much of the market rally as evidenced by the Nasdaq-100’s 40% year-to-date gain, investors may want to give bonds a look. As the stock market potentially turns frothier, bonds could provide bargains, especially for value-oriented investors.

Despite the rally, the threat of a potential recession continues to loom over the economy. The tightening of monetary policy by the U.S. Federal Reserve could eventually push the economy into a recession, creating an opportunity for investors to pile into safe haven assets like bonds.

According to a Bloomberg article, there’s currently a “60% chance of a US recession in the next 12 months, according to economists in a recent Bloomberg survey.” Juxtaposing this data is the CNN Fear and Greed Index, which is pegged at Extreme Greed, alluding to investor confidence that could potentially be hubris if a recession were to occur.

“We think that as the data continues to unfold throughout the rest of the year, people will see that the economy is in fact slowing,” said Lesley Marks, Mackenzie’s chief investment officer of equities. “The relative value exists right now in fixed income.”

Get Diversified Bond Exposure in One ETF

As opposed to building an individual bond portfolio, investors can opt for an aggregate alternative via exchange traded funds (ETFs). One diversified approach that is cost-effective (0.03% expense ratio) is the Vanguard Total Bond Market Index Fund ETF Shares (BND).

BND seeks to provide broad exposure to the taxable investment-grade U.S. dollar-denominated bond market, excluding inflation-protected and tax-exempt bonds by tracking the performance of the Bloomberg U.S. Aggregate Float Adjusted Index.

According to the issuer, BND offers the following:

  • Offers relatively high potential for investment income; share value tends to rise and fall modestly.
  • May be more appropriate for medium- or long-term goals where you’re looking for a reliable income stream.
  • Is appropriate for diversifying the risks of stocks in a portfolio with non-correlated assets like bonds
  • A 4.37% 30-day SEC yield (as of June 30)

For more news, information, and analysis, visit the Fixed Income Channel.