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US Total Bonds (BND): PowerShares CEF Income Composite shows good Performance

04/20/2011

Setting targets for your retirement nestegg must be evaluated based on the risks and the returns of the portfolio. The type of lifestyle achieved in retirement depends on decisions taken today.

Bonds provide low risk, predictable income and are a key part of a portfolio. They are an investment with low risk and constant payments. In a previous article we outlined the types of credit risk that are possible for these types of investments.

All bonds are under pressure and the US total Bond market is in the lower half of the table as interest rates domestically are being kept low by the Fed.

Major Asset Classes Trend

04/15/2011

Description	Symbol	1 Week	4 Weeks	13 Weeks	26 Weeks	52 Weeks	Trend Score
Treasury Bills	SHV	0.01%	0.01%	0.06%	0.05%	0.12%	0.05%
Emerging Mkt Bonds	PCY	-0.45%	0.53%	0.47%	-4.3%	6.52%	0.55%
Frontier Market Stks	FRN	-1.63%	6.32%	-7.13%	-5.77%	11.34%	0.63%
Intermediate Treasuries	IEF	1.49%	-0.85%	-0.01%	-4.26%	6.86%	0.64%
Municipal Bonds	MUB	0.84%	0.45%	5.25%	-3.69%	0.57%	0.68%
Mortgage Back Bonds	MBB	0.71%	-0.1%	0.54%	-0.01%	3.92%	1.01%
Total US Bonds	BND	0.82%	-0.26%	0.77%	-0.44%	5.01%	1.18%
US Credit Bonds	CFT	0.98%	-0.02%	1.32%	-0.21%	6.11%	1.63%
International Treasury Bonds	BWX	0.93%	0.07%	4.49%	-0.04%	10.44%	3.18%
International Developed Stks	EFA	-0.54%	5.23%	2.52%	6.94%	8.47%	4.53%
US High Yield Bonds	JNK	-0.05%	1.28%	2.68%	8.69%	14.88%	5.49%
International REITs	RWX	-0.1%	4.52%	1.25%	4.62%	21.16%	6.29%
Emerging Market Stks	VWO	-1.63%	8.33%	2.25%	6.58%	18.78%	6.86%
US Stocks	VTI	-0.61%	3.65%	2.9%	15.79%	15.39%	7.42%
US Equity REITs	VNQ	2.49%	3.99%	6.7%	10.41%	23.94%	9.5%
Gold	GLD	0.97%	4.83%	9.31%	8.51%	30.39%	10.8%
Commodities	DBC	-2.35%	4.88%	11.24%	24.98%	28.54%	13.46%

In the very short term (1 week) US Bonds ended below other Fixed Income Investments, such as the Treasury Bills (SHV), which is short term focused (maturity less than a year), but Above Municipal Bonds (MUB) and International Treasury Bonds (BWX).

PowerShares CEF Income Composite (PCEF) is a diversified portfolio which includes mostly Bonds (44%), followed by High Yield Bonds (20%) and Options (36%). This provides low risk with a high one year return.

U.S. Total Bonds

04/08/2011

Description	Symbol	1 Yr	3 Yr	5 Yr	Avg. Volume(K)	1 Yr Sharpe
PowerShares CEF Income Composi	PCEF	6.21%	NA	NA	57	55.92%
Vanguard Intermediate-Term Bon	BIV	4.07%	1.7%	NA	129	71.62%
iShares Barclays Aggregate Bon	AGG	3.73%	4.49%	5.52%	715	114.39%
Vanguard Total Bond Market ETF	BND	3.03%	1.62%	NA	805	92.35%

Vanguard Intermediate-Term Bond (BIV) is, as its name suggests, a safer Bond in the Medium Term, with lower returns. In other words, a less risky portfolio, that comes with lower returns, composing the investments in 50% of the assets in Corporate Bonds and the other half in US Government Bonds.

BIV can be a good choice taking into account the maturity of the asset and that the risks of the investments can be due to significant changes on interest rate.

iShares Barclays Aggregate Bond (AGG) has a longer performance history. Despite lower 1 year returns, the 3 and 5 year returns are strong which translates into a good price/yield ratio.

Finally, Vanguard’s Total Bond Market ETF (BND), shows a lower one year returns, but showing longer history (3 years), and good volume. It is an ETF based on high quality, medium Weighted Maturity.

US Total Bonds deserve consideration for a diversified Portfolio for medium to long term objectives, linked with consistent returns.

Today Bonds are under pressure with many momentum strategies preferring cash. However, in the long term, a well thought out bond strategy is a critical piece of the retirement portfolio. PCEF delivers strong one year returns but is very new. Having AGG as the safe, proven alternative makes sense.

Symbols: CEF, BND, SHV, MUB, BWX, PCEF, BIV, AGG, Exchange, Tickers, (NYSE: CEF), (NYSE: BND), (NYSE: SHV), (NYSE: MUB), (NYSE: BWX), (NYSE: PCEF), (NYSE: BIV), (NYSE: AGG)

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

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