Bond Traders’ Hot Tip for Next Year? Buy Stocks.
With yields this low, fixed-income investors are left with few good options to meet their return goals.
Options are limited.
Photographer: Mary Turner/Getty Images
There’s always been something of a rivalry between traders in stocks and bonds. Equities grab most of the headlines — they are shorthand for “the market,” after all — and captivate individual investors. Fixed income, on the other hand, is for pessimists and hedgers and is often praised as the “smarter” asset class.
No one truly disputes the notion that stocks tend to deliver superior returns to bonds over a long period. But during the past three decades, it’s been a relatively tight race. The Dow Jones Industrial Average has gained an average of 11.1% a year since 1990. The S&P 500 has earned 10.7%. High-yield bonds have returned 8.9%, investment-grade corporate debt has gained 6.9%, and even U.S. Treasuries have delivered 5.5% on an annual equivalent basis, according to Bloomberg Barclays index data. During this stretch, with a handful of smart decisions, a fixed-income fund manager could at least hope to match the overall performance of U.S. equities, if not beat the indexes altogether.