Great Rotation - revisited

Race for the exits?

I saw a comment from Dynamic Mutual Funds this week [week of June 10th] They are tentatively saying that the Great Rotation [1] may have begun.

Another mutual fund firm, AGF, advises me that May 2013 bond fund returns have turned decidedly negative.

Even the press is starting to pick up the story of a possible big correction in the bond market.

Lately, asset managers, advisers and other financial professionals seem to be glued to their computer terminal screens watching the U.S. 10-year Treasury note yield.

It has made a 1-year high. Remember, as the price of the bond drops, its yield increases. Despite the inverse relation between price and yield, like stocks, bonds are the same - you do not want to see the price drop on your investment!

Unless declining bond prices are making headline news, investors may not notice until January 2014 when they are reading their end-of-year 2013 statements.

Currently, I do not have any large bond positions in my portfolios. which might be a good thing if U.S. interest rates continue to rise. Although higher interest rates is great news for GICs, higher rates are bad news for existing bond holders who may lose money if the price of their bonds continues to drop.

What bond mutual fund holders and balanced mutual fund owners need to know

If you see words like "bond", "income" or "yield" in your mutual fund statement, you likely have bonds in your portfolio. This is important: higher interest rates are bad for bonds (think teeter-totter effect) as rates and bond prices go in opposite directions.

There is still a debate as to whether or not bond prices have temporarily dropped or have started a more permanent decline. If there is a stampede out of bonds, this could mean that a lot of this money might go back into the stock market. Because there has been large upward price movements in both stocks and bonds in the last 4 years or so, I am recommending that you contact me in order to determine if you may be over-concentrated in one area or another and also determine if any changes need to be made to your mutual fund portfolio.

Please contact me at or call me at 519.744.3020 in order to schedule an appointment. 

[1] "Great Rotation" – Investors massively piled into bonds during the last four and a half years. The "Great Rotation" refers to the possibility that this huge amount of money in bonds will be "rotated out" and switched to stocks.


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