One of the long-standing mysteries of capital markets has always been the amazing ability of the herd of retail investors to be perfectly out of sync with the market. Ask any fund manager or investment adviser. It never fails. When the markets are moving into a new phase, say shifting to safety in bonds, retail investors are usually one half-cycle behind and still moving into equities. Or vice versa. It seems that just as retail investors get around to paying attention to their portfolio and get up to speed on markets, markets have moved on. Theres a PhD thesis in the flow and processing of information across the retail crowd. The conclusion? The further you get from the action the greater the lag in info processing. Proof of this arrives once again with news that iShares, a division of Barclays Global Investors Canada, has seen a massive 300% increase in the amount of money flowing into its bond ETFs over the last yeara flood that has arrived just as equity markets seem to be recovering. Like clockwork, the great herd of retail money is perfectly out of sync again. To be fair, one understands the motivation among the herd. Investors are shell-shocked as a result of the cratering of equity markets last year and theyre looking for safety. And so it actually makes sense to get to bonds in a big way if thats whats going to let you sleep at night (and those who were in a year ago have likely caught the big wave). But it does look like the late comers are missing the recent gains in equities. Or maybe Im wrong. Perhaps retail investors have smartened up as a result of the recent volatility and are actually reading this current equity market bounce as one of the dead cat bounce variety. That is, theyre ahead of the game this time. Could be. Whatever the case, the ETF option on bonds likely makes sense. Bond ladders can be a pain to construct and maintain. Dropping your money into one of iShares’ bond ETFs is an easy way to track bond performance cheaply. The MERs are just .25% to .40%, and these ETFs come in all the typical flavours: long/short duration, corporate or government. More info at www.ishares.ca/fixed _income.
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