Bonds, a safe haven to put your monies OR maybe not all your eggs in one basket…


Bond returns continued to deteriorate into 2011

Bond returns continued to deteriorate into 2011, as they represented the worst performing asset class for the one month and three month periods.  In the mid- term , bonds performed much better and were the top performing asset classes over the 3 year, 4 year, 5 year and 10 year time frames.  Over the longer term, bonds continued to come up short against other long term asset classes.

Canadian stocks performed well over most periods.  It was the top performing asset class over the 1 year, 2 year and 15 year time frames. U.S. stocks began the year with stronger performance.  This asset class was the top performer for the 3 months, 6 months and 20 year time frames.  European stocks, again was the top performing asset class over the 1 month time frame.  Global stocks, while improving their absolute returns on the short term, failed to reach the top performing asset class in any time frame.


With the continued improvement of Global economies, interest rates are starting to be raised to slow the pace of growth.  Inflationary concerns are now becoming a serious issue to some of the emerging economies like China, India, Brazil and Australia. Bond traders continue to push yields higher and consequently prices lower, which continues to hurt the overall demand for this asset class.  A shift from bonds to stocks should continue for the foreseeable future.

Corporate earnings for the fourth quarter of 2010 continue to look strong on a year over year comparison.  Valuations of stocks have been pushed higher but still offer considerable upside from current levels.  With the gradual improvement in the U.S. economy, U.S. stocks could be the surprise performer in 2011.

Robert Floyd, CFA, is Lead Manager for BirchLeaf Investments (