Home
In this issue
April 21, 2014

Andrew Silow-Carroll: Passoverkill? Suggestions to make next year's seders even more culturally sensitive

Sara Israelsen Hartley: Seeking the Divine: An ancient connection in a new context

Christine M. Flowers: Priest's execution in Syria should be call to action

Courtnie Erickson: How to help kids accept the poor decisions of others

Lizette Borreli: A Glass Of Milk A Day Keeps Knee Arthritis At Bay

Lizette Borreli: 5 Health Conditions Your Breath Knows Before You Do

The Kosher Gourmet by Betty Rosbottom Coconut Walnut Bars' golden brown morsels are a beautifully balanced delectable delight

April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

Get Ready for Rising Rates

By Steven Goldberg






JewishWorldReview.com | Looking for bonds that will hold their own in a period of rising interest rates? I think I've found a good hiding place in Osterweis Strategic Income (OSTIX).

In my view, the 30-year bull market in bonds--which saw yields on ten-year Treasuries fall from a high of 15.8% in September 1981 to a low of 1.4% in July 2012--is history. Rates are likely to rise, albeit gradually and with some interruptions, for years to come. Because prices of most fixed-income investments move in the opposite direction of yields, bond investors are sailing into the wind.

What to do? The obvious move is to invest in short-term bond funds. Their bonds come to term quickly so, when rates are rising, investors can frequently reinvest proceeds from maturing bonds in higher-yielding IOUs. The problem is that high-quality short-term bond funds pay virtually zilch. For instance, Vanguard Short-Term Corporate Bond Index ETF (VCSH), an exchange-traded fund, yields all of 1.4%.

To earn higher yields on short-term bonds, you have to invest in lower-quality junk bond funds. And Osterweis, in my view, is the best fund that does that. Strategic Income has a superb record. Over the past year through January 7, it returned 6.4%, beating the Barclays U.S. Aggregate Bond index by 7.7 percentage points. Over the past three years, the fund, a member of the Kiplinger 25, earned an annualized 6.4%, topping the index by an average of 3.0 percentage point per year. The fund's 30-day SEC yield is just 3.0%, but its current income distribution rate is 5.8%.

Osterweis should do well if long-term interest rates continue to rise, which is likely now that the economy finally seems to be accelerating and the Federal Reserve has begun to pare back its bond-buying program. Strategic Income's price would fall only about 2% if rates on short-term junk bonds rose by one percentage point. If the increase occurred over the course of a year, the fund's yield would more than offset the small loss of principal. Moreover, although a strengthening economy is likely to result in higher yields on high-quality bonds, rates on short-term junk are unlikely to rise much, if at all.


FREE SUBSCRIPTION TO INFLUENTIAL NEWSLETTER

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It's free. Just click here.


The bigger peril for investors in Strategic Income is credit risk. The fund's average credit quality is only single-B, which is firmly in junk territory. Issuers of junk bonds stand a real chance of defaulting on their obligations.

What's encouraging is that Strategic Income has never experienced a default. Co-manager Carl Kaufman, who launched the fund in 2002, says there's no magic to what he's doing. "We try to fish in the right waters," he says.

Kaufman, 57, has an unusually broad mandate in running Osterweis. He owned Treasuries in 2008, then turned primarily to junk bonds in 2009. He started to focus on short-term high-yield bonds early in 2012.

I do have two concerns about Strategic Income. First, I worry that short-term junk bonds might not be offering enough yield to compensate for the risks of owning low-grade bonds. The Merrill Lynch 1-3 Year High Yield Index currently yields 4.6%. That's well above the virtually negligible yields of similar-maturity Treasuries, but it's low in absolute terms.

Second, I worry that Strategic Income, which has grown to $5.8 billion in assets from $604 million at the end of 2009, has gotten too big. (I'm also not too keen on the fund's annual expense ratio of 0.91%, which I think is too high.)

No question you're not getting paid all that much for investing in short-term junk bonds. But relative to everything else, the payoff looks good. And Kaufman's record of never having a experienced a default is heartening.

Osterweis's asset growth is a tougher issue. Kaufman ran the fund himself before hiring a co-manager, Simon Lee, at the end of 2008. Last June, he hired a second co-manager, Bradley Kane. But that still leaves just three people handling a boatload of money, much of which is invested in a relatively small sector of the market. Moreover, Kaufman says, Osterweis has no plans to shut the fund to new investors anytime soon.

Kaufman says the fund only holds about 100 positions. He says all three managers review each bond, and they know all of the holdings inside out. "We know which companies have good chief financial officers and which companies don't."

The fund rarely sells. The official turnover ratio is 82%, implying that the fund turns over almost its entire portfolio every year. But, Kaufman says, bonds that mature or are redeemed early by the issuing company account for 70% of the fund's annual turnover.

My bottom line: Kaufman's record of avoiding defaults is impeccable--and quite reassuring. He impresses me as a thoughtful manager who will know when it's time to close. His co-managers both have long experience investing in junk bonds.

Osterweis Strategic Income is a first-rate fund. But it's not a buy-and-forget fund. If the economy shows signs of falling into recession, I'd sell--unless, of course, Kaufman is nimble enough to have changed the fund's direction by then.

Sign up for the daily JWR update. It's free. Just click here.

Interested in a private Judaic studies instructor — for free? Let us know by clicking here.

Comment by clicking here.

Steven Goldberg is a Contributing Columnist for Kiplinger.



All contents copyright 2013 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC

Quantcast