Howard Marks' Presentation at London Value Conference on the Sweet Spot in Corporate Bonds

Continuing our notes from the London Value Investor Conference 2013, the next speaker is distressed investor Howard Marks of Oaktree Capital.  He shared an outlook similar to what he's been writing.  However, he did highlight where a lot of his portfolio has been allocated.

Marks is the author of one of the best  investment books ever written, “The Most Important Thing". The book has recently been reissued  as “The Most Important Thing Illuminated” with commentary by Seth Klarman, Joel Greenblatt, Christopher Davis and Paul Johnson, making the already outstanding volume even better.

Marks has  done a lot of interviews and presentations recently. For those who have seen these and avidly read  his regular memos there honestly was not a lot new in the London presentation.  If you missed those, one of his last memos touched on how he thought equities were in stage 2 of a bull market.

One fascinating thing Marks alluded to in the Q&A, though, was that he views single b as the sweet  spot in corporate bonds. He said “most bonds in my portfolio have been single b for years.”

We've also highlighted some of Oaktree's recent equity portfolio moves here.


Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.

A Simple Conservative Fixed-Income Portfolio

Wanted to take a second and highlight a simple fixed income portfolio. For those who are too busy to actively manage their portfolio in this crazy market, there's a simpler, "set it and forget it" type of portfolio for generating income. Such a portfolio was just highlighted as a conservative option recently in Kiplingers. They write,

"William Larkin, fixed-income portfolio manager at Cabot Money Management, in Salem, Mass., says his portfolio was originally designed for conservative clients who wanted conservative investments.

These days, though, he finds that many clients who hadn't considered themselves conservative in the past are now interested in fixed-income investing only. This portfolio represents all parts of the fixed-income market at the lowest possible cost, he says, and recently yielded 6.3%. It also has a healthy slug of inflation protection, which is particularly reassuring given all the money that's being printed for various government stimulus and rescue plans around the world.

Larkin's portfolio:

25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)
25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)
10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)
10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)
7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)
7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)
7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)
7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)"

We actually wouldn't change much up with this portfolio. We'd obviously alter the percentage weightings based on age, retirement date goal, and risk tolerance. But, overall, this is a pretty solidly constructed portfolio for a conservative yield-seeking investor. And, you could substitute some other vehicles in there for other exposure as well. We definitely advocate a position in TIP for those desiring protection from the (in our mind) impending inflation. Also, LQD offers a decent yield from corporate bonds of many blue chip companies that aren't as risky. Blend in the corporate bond exposure from LQD with some exposure to HYG for exposure to riskier, higher yielding corporate bonds as well. Those are definitely our three favorite instruments in this portfolio. Emerging Market debt is also a very interesting play that theoretically could be enticing here, but we haven't done enough work in that area yet to really comment further on it.

You can view the entire post: Three Simple Portfolios.

Full Disclosure: market folly was long LQD at the time of publication