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Stock Managers Go Bonkers over Bonds

Corporate bonds have the stock guys salivating. At Morningstar's 2009 Investment Conference (held May 27-29), we heard from stock managers who are finding great buys in the bond world.

Russel Kinnel 01.06.2009

Corporate bonds have the stock guys salivating. At Morningstar's 2009 Investment Conference (held May 27-29), we heard from stock managers who are finding great buys in the bond world. A couple months ago yields peaked in the hefty double-digit range and many are still offering sizable yields.

To a stock manager, that means that they could potentially earn returns that beat typical equity returns yet have less risk because you just need the company to pay off the bond. It makes a lot of sense to me. If you're researching a company that you like and find an attractively priced bond, you could net a solid return. To be sure, even a high-yielding bond has more limited upside than stocks, which can double or triple if you're lucky, but that seems like a pretty good trade-off.

Gregg Wolper wrote recently about how many investors wish that their managers could move to cash in order to time the market. I'm wary of that because few managers can time the markets. I'm fine with managers whose discipline is to buy only when they find attractively priced stocks and keep the remainder in cash waiting for better opportunities.

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About Author

Russel Kinnel  Russel Kinnel is Morningstar's director of mutual fund research.

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