BondSavvy's Bond Investment Returns

Can bonds be high-return investments? Investors can increase fixed income returns with bonds that pay compelling yields and that can increase in price.  BondSavvy presents these total return investment opportunities to subscribers so they can increase their return on investment. Below, we show the bond return rates of BondSavvy's currently recommended bonds, as well as bonds we have sold. We compare these bond returns to those of leading bond ETFs.

We have publicly revealed certain previous investment recommendations in the Sample Edition of The Bondcast and the BondSavvy Blog, and show the names of those previously disclosed picks below.  

  BondSavvy Investment Returns Bond ETF Returns (7)

CURRENT BOND INVESTMENT RECOMMENDATIONS
Pick Date 
Price (1)
May 31, 2019
Price (2)
Total
Return (3)
iShares
AGG
iShares
LQD
iShares
HYG
May 31, 2019 [4 New Bonds; No Returns Data Yet]            
March 15, 2019            
Investment-Grade Bond 1 97.44 102.50 6.04%      
High Yield Bond 1 95.98   98.18 3.53% 3.20% 4.39% 0.50%
High Yield Bond 2 99.95   99.20 0.44%      
Investment-Grade Bond 2 87.95   89.88 3.39%      
December 12, 2018            
High-Yield Bond Pick 1 95.90 101.75 9.20%      
High-Yield Bond 2 97.42 101.00 6.36% 5.84% 9.13% 5.04%
Investment-Grade Bond 1 79.96   87.47 12.01%      
SUPER BONDCAST - November 19, 2018 (4)            
8/14/18 High-Yield Bond 1 90.56   94.50    8.15%      
Citrix Systems 4.500% 12/1/27 94.84 101.22    9.23% 6.81% 10.05% 5.40%
5/2/18 Investment-Grade Bond 2 68.34   77.69 17.48%      
12/13/17 Investment-Grade Bond 3 76.40   89.54  19.97%      
August 14, 2018            
High-Yield Bond 1 99.50   94.50 0.17%      
High-Yield Bond 2 96.29   97.75 5.44% 6.06% 7.71% 3.56%
Investment-Grade Bond 1 95.04   99.21 7.41%      
High-Yield Bond 3 93.27   91.25 3.37%      
May 31, 2018            
L Brands 6.875% 11/1/35 91.66   87.00 2.42% 6.47% 8.43% 5.48%
Citrix Systems 4.500% 12/1/27 98.08 101.22  7.79%      
May 2, 2018            
Investment-Grade Bond 1 85.85   92.30 12.23% 7.36% 9.38% 5.64%
Investment-Grade Bond 2 76.60   77.69 8.34%      
March 8, 2018            
Lennar 4.75% 5/30/25  99.33 101.00 7.56%      
AECOM 5.125% 3/15/27 97.40   98.19 7.28% 7.13% 8.28% 5.92%
Expedia 3.800% 2/15/28 93.62   99.97 11.78%      
December 13, 2017            
Investment-Grade Bond 1 96.35   94.67 3.50%      
Investment-Grade Bond 2 107.39 108.01  8.75% 4.99% 5.00% 5.17%
High-Yield Bond 1 [Recommended No More Buys 9/10/18] 60.95   27.00 -40.40%      
Investment-Grade Bond 3 92.27   89.54 3.39%      
September 26, 2017 (5)            
Investment-Grade Bond 1 [Recommended No More Buys 5/2/18]    86.86(6)   71.52 -7.69%      
Albertsons 7.45% 8/1/2029 78.50   93.50 35.02% 4.77% 5.53% 5.34%
Verizon 3.45% 11/1/2042 89.72   96.06  14.26%      

 

  BondSavvy Investment Returns Bond ETF Returns (7)

RECOMMENDATIONS WE HAVE SOLD

Pick Date
  
Sell Date
Total
Return (3)
iShares
AGG
iShares
LQD
iShares
HYG
Investment-Grade Corporate Bonds            
Marriott International 3.125% 6/15/26
CUSIP 571903AS2
12/12/18 5/21/19 8.89% 4.44% 7.60% NM
Alphabet 1.998% 8/15/26
CUSIP 02079KAC1  
3/8/18 4/1/19 5.66% 4.86% 5.58% NM
High-Yield Corporate Bonds            
DISH DBS 7.750% 7/1/26
CUSIP 25470XAY1
5/31/18 5/28/19 12.82% NM NM 6.04%
JCPenney 5.65% 6/1/20
CUSIP 708130AD1
11/19/18
9/10/18
5/28/19
5/28/19
  7.25%
-3.96%
NM NM 6.07%
3.80%
Pitney Bowes 4.625% 3/15/24
CUSIP 724479AJ9 
5/31/18 5/15/19 10.66% NM NM 5.90%
Monitronics 9.125% 4/1/20
CUSIP 609453AG0
9/26/17 9/14/18 -7.13% NM NM 2.59%

"NM" means "not meaningful," as we seek to compare our high-yield corporate bond returns with the iShares high-yield corporate bond ETF ("HYG") and our investment-grade corporate bond returns with the iShares aggregate ("AGG") and investment-grade ("LQD") corporate bond ETFs.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. SUBSCRIBER RETURNS MAY DIFFER BASED ON WHEN SUBSCRIBERS ACT ON BONDSAVVY RECOMMENDATIONS.


Analysis of Select BondSavvy Investment Returns

Verizon and Albertsons Bond Investment Returns: Case Studies
Many investors believe that 'interest rates' are the only thing that impact bond prices.  We have two real-world examples that will hopefully dispel this notion once and for all.  

On September 26, 2017, during the premier edition of The Bondcast, we recommended Verizon 3.85% 11/1/42 (CUSIP 92343VBG8) and Albertsons 7.45% 8/1/29 (CUSIP 013104AF1).  Understanding the changes in these bond prices helps investors better understand what to look for when investing in bonds and what truly causes bond prices to rise and fall.

Verizon 3.85% '42 Case Study
Verizon is an investment-grade issuer, as its bonds are rated Baa1/BBB+ by Moody's and S&P, respectively.  Bonds rated at least Baa3/BBB- are deemed 'investment-grade,' meaning that the credit rating agencies believe they have a lower risk of default than 'high-yield bonds,' which have lower ratings.  

In the below chart, we compare changes in the price of the Verizon 3.85% 11/1/42 to its benchmark US Treasury 2.75% 11/15/42 (CUSIP 912810QY7).  The reason it is called the 'benchmark' is that the maturity date is almost identical to that of the Verizon bond.  The price of that US Treasury bond moves up and down based on the demand for that particular bond.  As the price for this Treasury bond increases or decreases, its yield to maturity ("YTM") moves in the opposite direction.  The yield to maturity of this Treasury bond is telling investors what the 'risk-free' investment return is for a Treasury bond that matures 11/15/42, as the US Treasury is deemed to have no default risk.  (We don't believe the US government has zero risk of defaulting, but that discussion is for another post.) 

When the Verizon bond -- and nearly all other investment-grade corporate bonds -- are quoted on a trading desk, they will be quoted as a spread to the benchmark Treasury (the "credit spread").  For example, suppose:

Verizon 3.85% '42 YTM:                4.22%
US Treasury 2.75% '42 YTM:        2.89%    
Credit spread:                               1.33%

The Verizon bond's YTM is the result of changes in the benchmark Treasury AND the credit spread.  As Verizon's credit quality improves, its credit spread will typically shrink, as investors will require less return above the benchmark Treasury to compensate them for the extra credit risk they are taking.  When the credit spread shrinks, the bond's yield to maturity decreases and the price of the bond increases.  Similarly, if the benchmark Treasury yield moves up or down, that component of the Verizon bond's YTM will also move up or down.                                   

A real-life example is shown in the below charts, which show bond price changes for the Verizon '42 bond we recommended September 26, 2017 and its benchmark Treasury.  Since we recommended the Verizon bonds, they have increased in price 4.3 points, from September 25, 2017 through March 31, 2019, generating a total return of 11.3%, while the benchmark Treasury fell 0.5 points during the same time period.  The Verizon bond price increase happened because the credit spread for these bonds shrunk, as Verizon has been reporting strong financial results.  While moves in the '42 Treasury bond do impact the price of the Verizon '42 bond, the two bonds do not move in lockstep.  In this case, Verizon's strong operating performance enabled the bonds to increase in price even as the benchmark Treasury fell slightly in price since the date we recommended the Verizon bond.    



Albertsons 7.45% '29 Case Study
Bonds rated below investment grade (aka 'high-yield bonds') do not trade in relation to their benchmark Treasury as shown in the below chart, which compares changes in the Albertsons 7.45% '29 bond we recommended to its benchmark 6.125% 8/15/29 Treasury (CUSIP 912810FJ2).  High-yield bonds are known as a 'credit investment,' and their price is driven by changes in the underlying credit quality of the bond issuer.  For example, for the first half of 2017, the Albertsons bonds were trading at or above 96.  Then, in June 2017, Amazon announced it was purchasing Whole Foods, and many investors thought Albertsons wouldn't be able to compete, which caused the bonds to fall into the 70s, at which point we recommended the bonds at 78.50 on September 26, 2017.

Since then, Albertsons has delivered strong financial performance, and the bonds increased in price 10 points from the date we recommended the bonds through March 31, 2019.  You'll see the benchmark Treasury fell six points during this same time period, and movements in the prices in both bonds were not correlated whatsoever.




Investment Returns Table Footnotes                                 
* Source of bond price charts: FINRA market data.  Total returns calculated by BondSavvy.  Returns are not annualized.
(1) Pick date price is the top-of-book offer price shown on Fidelity.com the trading day prior to the pick date. Price assumes a $1/bond (0.1 points) mark-up on the quoted offer price.
(2) As of March 31, 2019, BondSavvy founder Steve Shaw owned all but two of the BondSavvy recommendations. Prices for bonds owned by Steve were obtained from the account statement for the brokerage where the bonds were held. The prices of the two not-yet-owned bonds reflect the average customer sell prices reported to FINRA's Trade Reporting and Compliance Engine (TRACE) on March 29, 2019, the final trading day of the period ending March 31, 2019. 
(3) Returns are calculated from the trading date immediately prior to the Pick Date through March 31, 2019.  BondSavvy believes these returns are understated compared to methodology of iShares returns, as (i) BondSavvy's total returns do not factor in re-investment of interest income and capital gains and (ii) the individual bond returns reflect a purchase at the offer price and a valuation at the bid price, which can negatively impact returns from 0.25 to 0.75 percentage points on average. The iShares returns are calculated based on changes in the fund's net asset value and, therefore, aren't penalized as significantly by a bid-ask spread. Returns calculations are not annualized. BondSavvy total returns include capital gain/loss and interest accrued. 
(4) During the 11/19/18 Super Bondcast, we recommended subscribers buy additional amounts of these previous BondSavvy picks. We also updated all other prior BondSavvy corporate bond investment recommendations, other than three companies which had yet to report earnings.
(5) BondSavvy recommended one other bond on September 26, 2017, which it then recommended subscribers sell on September 12, 2018. The total return on this bond was -7.1%. Thus far, this is the only bond pick we have recommended selling as of March 31, 2019.
(6) BondSavvy recommended these bonds at 89.92 on September 26, 2017. The price shows the blended price Steve Shaw has acquired these bonds across four different transactions. Note that we no longer are recommending purchases of these bonds but now recommend shorter-dated bonds of the same issuer.
(7) Returns calculated from the day immediately prior to the Pick Date through March 29, 2019, the final trading day for the period ending March 31, 2019 (iShares returns charts did not provide data through March 31, 2019).  Source of iShares returns is the iShares website.  We went to the home page for each iShares ETF, clicked "Performance" and then clicked the "View Full Chart" hyperlink under the "Growth of Hypothetical $10,000" heading.  We then entered the various date ranges and recorded the investment returns shown for the specific iShares ETF.                                  

 
Subscribe