The first quarter of this year saw TLT bond ETF rebound from harsh returns posted last year, as last year’s high interest rates resulted to falling yields this year. At the start of the New Year, market experts expected and change in the equity prices in the New Year. But this was not to be as disappointing economic activities coupled with unsettling headlines from key emerging markets such as Brazil and China accelerated the softening.
Oddly, cold weather was the major cause of the laxity in January and February economic data in 2013. But the TLT bond market had a little setback in March as speculation was fuelled by Federal Reserve Chairman Janet Yellen that there would be an increase in interest rates.
The fear of high interest rates has kept several TLT bond investors at bay and afraid of putting their money in bond ETFs. But despite this, a number of bond ETFs have continued to outperform in the U.S. stock market. The S&P 500 ETF is up by 1.8% in April 2014 and has been in this range for several months now. In addition, the bond ETFs have rallied as a result of the reduction of interest rates on the U.S. treasuries. As a result, the share TLT bond ETF has risen to 8.9% this year, a nine-month high. The present yield on TLT is 3.25% with an expense ratio of 0.15%. These ETFs are composed of treasuries with more than 20 years maturity date
The SPDR high yield ETF bond is also up by 3.5% in 2014 (including the monthly dividend).
The SPDR has a yield of 4.8% with an expense ratio of 0.45. This doubles that of a 10-year treasury bond.
Performance of Municipal Bonds in relation to TLT bonds
The High-Yield municipal Bond has a remarkable gain of 7.5% when the monthly dividend is included. Its portfolio is composed of 75% below investment grade municipal bond. This has actually outperformed the TLT Bond ETF. But the 30-Day yield of 5.4% is as a result of the tax advantage of municipal bonds, which has an astonishing 8.95%. Its expense ratio is 0.34%.
However, investors who want to invest from overseas can shift to the emerging TLT Bond ETF markets such as Brazil and China. The ETF has a steady increase of 3.5% with a yearly yield of 4.7%. Mexico, Brazil, and Russia are the countries with the highest portfolio exposure.
The US stock market no doubt has a high valuation today. Today’s valuation of 23x is much higher than the historical valuation of 14x earnings. This present high valuation is measured by the S&P 500 component stocks. But this market is beginning to experience some downturn, and the reason is not because the market is doing badly. It is because the market has been far too overvalued. Most US stocks are just too expensive and are not a representation of their actual worth compared to their historical precedents. This high valuation is a strong signal to investors that the market will soon move into the bear zone from the current bull zone it has been.
Investing has to do with buying at a lower price and selling at a higher price. So, the most important aspect of a stock’s price appreciation process is the price you pay for the stock. The best way to reap a lot of profits from the stock market is to buy stock of good companies when they are offering a low price. In this way, when the stock starts appreciating to reach its actual value, serious gains will be made. This is how investors make money in the stock market. But there will be little or no room for growth when you buy expensive stocks of companies, even if the company is doing exceptionally well.
The past week saw the S&P 500 Index reach a 4-year high, approaching the level not witnessed before since the 2008 recession. It shows you that there is only one stock market chart you need to see. This high growth came on the back of some improvements in recent weeks. There were improvements in payrolls and housing numbers, which gave investors some level of confidence that the Unites States economic recovery is gaining momentum. There is also a growing confidence that Europe will try and rescue the euro zone, giving exporters the confidence to do business.
Apart from the S&P Index, other indexes are equally doing well: Dow Jones has increased by 9.6% this year, while the NASDAQ has gone up by 3.7%.
Although the S&P 500 bounced back from its four-year high, investors believe that the worst economic era is seemingly behind them. Even after some negative results in the springs, investors are still brewing with confidence and stocks are still resilient.
There is no doubt that the U.S stock market has been overvalued for a long time. Investors who still want to pitch their investment tent with well known companies can still make some profits, but the real movers of the market would be those that can spot and invest in good performing stocks that are still selling low.
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