I was going to title this post something like ‘bond quant performance during the bond meltdown’ or something a bit more hyperbolic than the current title. But there’s enough hyperbole in the financial news without me adding to the mix. Just google ‘bond meltdown’ and you’ll see what I mean. Anyway, in this post I want to take a quick look at how the Bond Quant model has performed during the recent bond selloff. I’ll look at performance from the end of 2015 through yesterday.
Bonds were having quite the year until summer. The bond market peaked in summer, July 8th to be precise, not before the election. Now, IEF is negative for the year, BND or AGG are at just under 1.5% for the year, and international bonds are about 3.5% YTD. Now, lets take a look at the basic Bond Quant which holds the top 3 bond ETFs, ranked by 6 month momentum.
Note: ignore the benchmark in the screenshots below. P123 forces you to choose a benchmark and there are no bond benchmarks in the tool.
The Bond 3 portfolio us up 6.05% YTD with a drawdown of just over 6% from its high in early July. Not too bad. Basically up to July, performance was mainly driven by long treasuries which then transitioned into junk and emerging bonds. The more aggressive version of the bond quant model only holds the top holding, Bond 1. Here is its performance throughout 2016.
Even better with a YTD return of 9.74% and a max drawdown of around 5%. Here you can more clearly see the switch in performance drivers since the portfolio has the opportunity to be 100% long the best performing ETF. There have been only two trades since the beginning of the year. The portfolio was long high yield munis at the beginning, switched to long treasuries in late Feb, and went to junk bonds in August. Pretty simple, yet effective, without all the hype.
In summary, as we should expect from a quant momentum model, the bond quant model has generated good performance relative to its benchmarks while avoiding the worst of the selloff in the bond market.
Note: all the quant models and performance charts are done with Portfolio123.com.
Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.