"Fixed income = steady profit and no loss" is a major misunderstanding that we must break when we make fixed income + investment. In fact, compared with the soaring progress around 2020, the limelight of fixed income + in recent years has obviously been much quieter; In particular, after the equity market turned from bull to bear, the performance of the equity-bearing bond base has been quite affected. In the face of volatility, can fixed income+ be stable and calm? When will the tailwind come?
Short-term drawdown for fixed income + does not actually mean substantial losses, through the scientific matching of stocks and bonds, fixed income + products have a defensive "safety cushion", extending the holding period can improve the winning rate. In the cycle of bull and bear change, fixed income + is a good confirmation of the effectiveness of asset allocation, where does this sense of stability come from? We look back at the historical market and the most practical and direct calculations to find the answer.
1. Taking history as a mirror, the ups and downs of fixed income +
Source: Wind
Both the equity market and the bond market have experienced a bull and bear shift over the past few years.
In 2020, due to the continued strength of the equity side and the transformation of wealth management net worth, fixed income + stood in the center of the stage; At that time, the income of the primary debt base, the secondary debt base, and the partial debt hybrid fund far exceeded that of pure debt, and the money-making effect was significant, and fixed income + was pinned on the high hope of "financial substitution".
In 2021, the equity market will show a divergent trend, rising in fluctuations, fixed income + due to better drawdown control, to a certain extent, resisting the volatility of the equity market, coupled with the linear extrapolation brought by the wonderful performance of the previous year, its issuance scale ushered in the highest peak in the past year, so far fixed income + has been booming for two years.
In 2022, several waves of rapid decline in the equity market will also bring drag to the convertible bonds, and the performance of the equity-based debt base is even weaker than that of pure debt, and the returns of many related products are negative; Due to the allocation of risk assets such as stocks and convertible bonds, fixed income + products may also bring a sharp drawdown to them when the equity market fluctuates sharply. This year can be described as the "darkest moment", and "fixed income +" has become "fixed income -" in stages, almost giving back the profits since 2021.
In 2023, the trend of the equity market rising first and then declining will make the performance of fixed income + products differentiated, and the performance of the primary bond base will be outstanding. However, at this time, fixed income + is no longer the myth of the past, and the scale of stock and the popularity of issuance have declined simultaneously.
Fixed income + has experienced a "roller coaster" in just a few years, which has also made investors look forward to its "plus" word, from the earliest "plus income" to understand that "returns and risks increase together", and "risk is the source of excess returns" This law is no exception in fixed income + products.
Fixed income + is no longer hot due to the shock of the equity market, is it silent for a while, or is it broken? Is fixed income + products profitable?
2. What is the fixed income + income?
We use Shenwan Hongyuan Fixed Income + Fund Index (801615. SI) conducted a backtest of data from 2014 to the present for the past 10 years to see what the actual situation is.
Buy and hold for 3 years at any point in the past, the highest return is 38%, the lowest return is -2%, and the probability of positive return is as high as 98.5%
If you buy at any point in time, the holding period is extended to 5 years, the highest return is 41%, the lowest return is 7.6%, and the probability of a positive return is as high as 100%
(Data source: Wind, data range: 2014.5.31-2024.5.31, historical index performance is not indicative of the future)
It can be found that the characteristics of "fixed income +" products are that when held for a long enough time, the higher the probability of positive returns, and the return of the lowest return will also be greatly improved, but it does not mean that the fixed income + fund will not lose money.
If we buy at any point in the past, we shorten the holding period to 6 months and find that the highest return is only 25%, the lowest return is -5%, and the probability of a positive return is only 71%
(Data source: Wind, data range: 2014.5.31-2024.5.31, historical index performance is not indicative of the future)
Therefore, it is best for investors not to have the mentality of making quick money when entering the fixed income + market, as past data proves that long-term holding has a higher winning rate.
Since it takes a long time to earn, what about the base holding experience of fixed income +?
Here we make a summary of the previously mentioned funds and compare them with equity funds, and the results are more obvious.
Data source: Wind, data range: 2014.05.31-2024.05.31, the historical performance of the index is not indicative of the future
From the perspective of long-term returns, it is clear that equity funds are far ahead and have become a better way to fight inflation and pursue asset preservation and appreciation.
But to achieve such high returns, investors may have to ask themselves if they can "I am greedy when others are afraid". At this time, we focus on the key indicator of volatility, and it is obvious that the "shock" of fixed income funds and equity funds is not at the same level at all-
Although the cumulative return of equity funds is high, but the volatility is also greater, and in the face of such high volatility and large drawdowns in the long-term market participation, it is very likely that the yield will be lowered if it cannot be held or the wrong redemption is made
Although the explosive power of fixed income funds is not as good as that of equity funds, they are obviously more stable and belong to the "thin water and long-flow" players
Fixed income funds have a lower "shock" and higher defensiveness against market volatility, making them a good choice for the "ballast stone" in the asset portfolio.
3. Where does the sense of stability of "fixed income" come from?
From the multi-faceted observation of actual performance measurement, it is not difficult to find that fixed income+ is a kind of product suitable for long-term holding in order to win a higher winning rate; It is this characteristic that has led to the title of "investment stabilizer" and "asset allocation ballast". So where does this "sense of stability" come from?
Fixed income funds mainly invest in bonds, which are interest-bearing assets, and the main sources of income are bond interest and capital gains.
01 Bond interest – the cornerstone of bonds
The interest due to the holder is calculated based on the coupon rate, which is fixed and can obtain a stable cash flow income as long as the bond does not default
02 Capital Gains – Market Bid-Ask Spread
Another interest rate that affects the price of a bond is the market interest rate, which is inversely proportional to the price of the bond. Since bonds can be traded on the secondary market, the difference between buying and selling can be earned by buying low and selling high.
Of the two sources of income, capital gains fluctuate more influentally. And because the market interest rate is not like the coupon rate, it will not change after the initial agreement; Market interest rates are affected by multiple factors such as economic fundamentals, policy aspects, and market liquidity, and bond prices will fall when market interest rates rise, resulting in short-term disturbances.
However, there is no need to worry too much about this, although there may be price losses in this part of the income source, due to the existence of coupon income, the continuous accumulation will repair the loss of bond prices. Although there are occasional bumps in the bond base, it will continue to hit new highs after "filling the pit", and the trend is always upward.
This is where the sense of stability of fixed income funds comes from this: investing most of their positions in low-risk fixed-income assets as the bottom position to obtain basic income and control investment risks; The remaining 20% or so of the position is invested in equity assets, so as to increase the income on the premise of controlling volatility and drawdown.
Compared with the law of short bulls and long bears in the equity market, the bond market in mainland China has always been short bears and long bulls, so one of the key to fixed-income investment is to extend the holding period to improve the winning rate, and time is a good medicine to iron out fluctuations.
4. When will the tailwind bureau come?
We reviewed the ups and downs of fixed income+ in the past four years, and the moment we turned from the equity market, fixed income+ entered a more bumpy stage.
Last year, the average yield of fixed income + products barely turned positive, but the popularity has long since disappeared; On the other hand, while the equity market has been twists and turns, the bond market has stepped out of a wave of bond bull market with momentum. At present, what is the market environment facing fixed income +? Is there any hope for a way out of the trough?
In the first quarter of this year, nearly eighty percent of fixed income + funds achieved positive returns, and their performance rebounded significantly, and fixed income + seems to be returning. (Source: Wind)
01
Equity markets are gaining momentum
In the first quarter of this year, the stock market experienced a downward trend and then an upward trend, with A-shares bottoming out and rebounding after the Spring Festival, with the Shanghai Composite Index up 3.76% year-to-date, and large-cap stocks outperforming small- and medium-cap stocks. Recently, the market has returned to the volatile range, but upward expectations are also brewing:
From the perspective of total equity, whether from the perspective of A-shares or Hong Kong stocks, the profits of listed companies have entered the bottoming stage, and the market has begun to play the expectation of the bottom reversal of related industries;
From the perspective of funds, short-term northbound funds have basically completed the net outflow of last year at the beginning of the year, and ETFs and insurance funds are expected to become medium and long-term incremental funds;
The steady growth policy is intensively exerting force, and the April Politburo meeting and the follow-up real estate policy catalyzed the market risk appetite has increased, which is conducive to the realization of the valuation repair in the "bottom of the profit" stage.
02
The bond market fluctuated in a narrow range
Looking at the bond market, the yield on 10-year Treasury bonds once fell to a new low since 2002, and the bond market continued to be strong.
Although the bond market was once volatile due to the central bank's reminder of market interest rate risks and the issuance of ultra-long-term special treasury bonds, the structural improvement of the economy will not have a fundamental impact on the logic of bond bulls.
The situation of "strong debt + not weak stocks" is obviously good for the performance of fixed income +, the market environment has improved, the follow-up stock market has structural opportunities, the bond market has coupon opportunities, and the return may be on the way.
Having said that, when we have a certain understanding and expectation of the possible drawdown of fixed income + and the income generated by long-term holding, we should exercise our "dull sensitivity" for market fluctuations, and have expectations for risk and time, so we might as well hand over the returns to time. The flowing water does not compete for the first, but the competition is endless.
We used the first three words to clarify with you the characteristics of fixed income + in terms of winning income and controlling drawdown, as a good bottom asset in family asset allocation, how do we choose a fixed income + product that suits us? Do I need to choose the right time to invest in fixed income+? In the next episode, let's talk about the practical operation guide~
Risk Warning
The views expressed in this material are for informational purposes only and are not intended as any legal documents, and all information or opinions expressed in the materials do not constitute final operational advice on investment, legal, accounting or taxation, and we do not make any warranties for the final operational advice regarding the content of the materials. Under no circumstances shall the Company be liable to any person for any loss arising from the use of any content in this material. The above content does not constitute a recommendation of individual stocks. The past performance of the Fund and its net worth are not indicative of its future performance, and the performance of other funds managed by the Fund Manager does not constitute a guarantee of the performance of the Fund. The Manager does not guarantee profitability and does not guarantee a minimum return. Investors should fully understand the difference between regular and fixed investment of funds and savings methods such as small deposits and withdrawals. Regular investment is a simple and easy way to guide investors to make long-term investments and average investment costs. However, regular investment does not avoid the inherent risks of fund investment, does not guarantee investors to obtain returns, and is not an equivalent financial management method to replace savings. The market is risky, and you should be cautious when entering the market.
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