In a troubled market for equities as well as bonds, some advisors are stepping up to the plate and buying corporate bonds and bond funds for clients. Others are holding back, citing liquidity and credit concerns.
L.J. Altfest & Co. has increased its purchase of individual taxable bonds and bond mutual funds for its clients by investing in funds by PIMCO, Vanguard, Loomis Sayles and Trust Company of the West (TCW), according to Nandini Wamorkar, CFP, an advisor at the New York-based Altfest. "Armageddon-type default scenarios are being reflected in prices of high-quality corporate bonds. Investment-grade corporate bonds are being priced on average of 525 basis points over LIBOR, which implies a 35% default rate. This clearly supercedes defaults observed in the past," she says.
On the other hand, Legend Financial Advisors Inc. in Pittsburgh has not been an active buyer of corporate bonds or corporate bond funds. "With the credit crisis, there's limited liquidity with bonds, so if you were to buy a bond you'd have a hard time selling it if you wanted to," says Jim Holtzman, CFP, CPA, an advisor at the firm. The few bond mutual funds the firm is buying have only limited exposure to corporate bonds, he says.
Bruce W. Fraser, a freelance financial writer in New York, has written for many prestigious publications and Web sites like CNBC.COM, Forbes.com and Worth.com. He can be reached at [email protected]. bwfraser.com/home.