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2010 Fixed Income March 23rd Corporate Bonds Webinar

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Webinar updates as well as issuing corporate bonds webinar on powerpoint. NBOAC newsletter on revenue generation will be out this month.

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2010 Fixed Income March 23rd Corporate Bonds Webinar

  1. 1. Things to know about Corporate Bonds Amir Homayoun Rafizadeh, MBA Kruse Asset Management Co-Founder of National Business Owner Advisory Council Managing Director of Client Education also known as “wadvisor” presents: Reducing your income tax’s How good is your investment advisor? Reducing your estate & income tax’s Best Chicago financial advisor wadvisor What your advisor doesn’t tell you Mutual funds are expensive Advanced IRA planning expert wadvisor
  2. 2. Disclosures : Past performance does not guarantee future results . The following material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument. The information here should also not be used or relied upon for legal, tax and investment advice. Please consult your attorney, tax advisor or financial advisor for further consultation. The views discussed here may not be appropriate for all investors. Please conduct your own due diligence and research . Any forecasts and charts contained here are for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation . Opinions, estimates, forecasts and any other statements or financial forecasts/market commentary are based on current conditions and are subject to change without notice. The strategy is developed by Stuart Kruse, President and Founder of Kruse Asset Management. QVP is a trademark of Kruse Asset Management.
  3. 3. An Interview with Matt Kraus, the bond Guru
  4. 4. Fixed Income Webinar Dates 2010 1 st Wednesday LinkedIn & Networking Strategies Week 1 1 st Thursday Small Business best practices Week 2 Week 3 Week 4 2 nd Thursday Looking for Alpha 3rd Thursday Private business growth strategies 4th Thursday In the works 1 st Tuesday Asset Allocation series 2 nd Wednesday In the works 2 nd Tuesday In the works 3 rd Wednesday Advanced wealth management 3 rd Tuesday Google strategies 4 th Wednesday In the works 4 th Tuesday of every month
  5. 5. 2010 Webinar topics on Fixed Income (11am Central) 2010 Jan 26th Feb 23rd Mar 23rd Apr 27th May 25th Jun 22nd Jul 27th Aug 24th Sep 28th Oct 26th Nov 23rd Dec 28th Yield curve and bond market updates Things to know about corporate bonds Essential tips for municipal bonds Individual bonds vs. bond mutual funds Why bonds alone won’t make a portfolio safe How high yield bonds can increase yield Advantages & disadvantages of TIPS for 2010 and beyond Why owning treasuries can be very different this decade Hedging strategies that institutions utilize Strategies to enhance your fixed income portfolio yield Things they don’t tell you about closed end funds Bond market and inflation outlook
  6. 6. Things to know about corporate bonds <ul><li>In 2009 all we heard was corporations are making more profits and there has been a significant improvement in corporate earnings. Does that translate to a better pricing for their bonds? Matt and I will discuss the environment and explore which industry sectors and companies (and their bonds) will benefit the most from any changes in interest rates. </li></ul><ul><li> </li></ul><ul><li>(Mar 23 rd - 11 am Central) </li></ul>
  7. 7. Corporate Bonds What Investors need to know By Matt Kraus Kruse Asset Management
  8. 8. What is a Corporate Bond? <ul><li>Debt security issued by corporations. </li></ul><ul><li>A. F.I securities created for purpose of raising cap. </li></ul><ul><li>B. Type of loan agreement between issuer an investor. </li></ul><ul><li>2. Backing for bond is payment ability of corporation. </li></ul><ul><li>A. Money earned from future operations </li></ul><ul><li>B. Physical assets of company. </li></ul>
  9. 9. What is a Corporate Bond cont’d <ul><li>Corporate bonds are issued in blocks of $1000 par value. </li></ul><ul><li>Most have a set coupon payment structure </li></ul><ul><li>and a set maturity date. </li></ul><ul><li>Call provisions </li></ul><ul><li>A. Bonds will state when and at what price. </li></ul><ul><li>B. Issuers discretion </li></ul><ul><li>Corporate bonds maturities </li></ul><ul><li>A. 1-30 year range </li></ul><ul><li>B. Less then 1 year , commercial paper. </li></ul>
  10. 10. What is a Corporate Bond Cont’d <ul><li>Corporate bonds fully taxed. </li></ul><ul><li>A. HNW investor should use tax deferred accounts to hold corporate bonds. </li></ul>
  11. 11. Pricing and Ratings <ul><li>Corporate bonds; Higher nominal yield than US Govt and Municipal Bonds </li></ul><ul><li>A. Higher risk = Higher yield. </li></ul><ul><li>B. Corporate Bonds fully taxed; Govt and Muni have some tax exemptions. </li></ul><ul><li>Bond Ratings </li></ul><ul><li>A. Moody’s and Standard & Poor's(SP) </li></ul><ul><li>B. Chance issuer defaults on prin or int. </li></ul>
  12. 12. Moody and S&P ratings Moody's S&P Meaning Investment Grade Bonds   Aaa AAA Bonds of the highest quality that offer the lowest degree of investment risk. Issuers are considered to be extremely stable and dependable. Aa1, Aa2, Aa3 AA+, AA, AA- Bonds are of high quality by all standards, but carry a slightly greater degree of long-term investment risk. A1, A2, A3 A+, A, A- Bonds with many positive investment qualities. Baa1, Baa2, Baa3 BBB+, BBB, BBB- Bonds of medium grade quality. Security currently appears sufficient, but may be unreliable over the long term Non Investment Grade Bonds (Junk Bonds)   Ba1, Ba2, Ba3 BB+, BB, BB- Bonds with speculative fundamentals. The security of future payments is only moderate. B1, B2, B3 B+, B, B- Bonds that are not considered to be attractive investments. Little assurance of long term payments. Caa1, Caa2, Caa3 CCC+, CCC, CCC- Bonds of poor quality. Issuers may be in default or are at risk of being in default. Ca CC Bonds of highly speculative features. Often in default. C C Lowest rated class of bonds. - D In default
  13. 13. 5 Things to Consider Before Buying <ul><li>What is the credit rating ? </li></ul><ul><li>A. Confident company will pay? </li></ul><ul><li>B. Possible downgrades in near future. </li></ul><ul><li>What is the I.R.(or coupon) </li></ul><ul><li>A. Is it high enough to compensate you for risk? </li></ul><ul><li>B. What is spread over treas. </li></ul><ul><li>C. Is it on a attractive part of yld curve. </li></ul>
  14. 14. 5 Things cont’d <ul><li>Total return investor </li></ul><ul><li>A. Liquidity of issue </li></ul><ul><li>B. Laddering Portfolio not as much as a concern. </li></ul><ul><li>Does the issue fit in with diversification goals of portfolio? </li></ul><ul><li>A. Maturity. </li></ul><ul><li>B. Industry. </li></ul><ul><li>Structure of Bond. (Callable, reset options, etc.) </li></ul>
  15. 15. HNW and the Ladder <ul><li>Rationale. </li></ul><ul><li>A. S.T. maturities –high degree of price stability- lower yields. </li></ul><ul><li>B. L.T. maturities- higher yield – more price volatility. </li></ul><ul><li>C. Spreading out maturities of portfolio. </li></ul><ul><li>1. price stability of short end. </li></ul><ul><li>2. Extra yield of long end. </li></ul>
  16. 16. Minuses of Corporate Bonds <ul><li>Not always best fit. </li></ul><ul><li>A. Higher nominal rates then Govt or Muni doesn’t mean better fit. </li></ul><ul><li>Tax implications. </li></ul><ul><li>Secondary markup from dealers. </li></ul><ul><li>A. Try and buy new issue. </li></ul><ul><li>4. Best corporate bonds are sometimes callable. </li></ul>
  17. 17. Pricing and Yields <ul><li>The following chart shows you an example of some typical spreads of corporate bonds over treasuries. (A/O 3/2006) </li></ul>Rating 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 30 yr Aaa/AAA 14 16 27 40 56 68 90 Aa1/AA+ 22 30 31 48 64 77 99 Aa2/AA 24 37 39 54 67 80 103 Aa3/AA- 25 39 40 58 71 81 109 A1/A+ 43 48 52 65 79 93 117 A2/A 46 51 54 67 81 95 121 A3/A- 50 54 57 72 84 98 124 Baa1/BBB+ 62 72 80 92 121 141 170 Baa2/BBB 65 80 88 97 128 151 177 Baa3/BBB- 72 85 90 102 134 159 183 Ba1/BB+ 185 195 205 215 235 255 275 Ba2/BB 195 205 215 225 245 265 285 Ba3/BB- 205 215 225 235 255 275 295 B1/B+ 265 275 285 315 355 395 445 B2/B 275 285 295 325 365 405 455 B3/B- 285 295 305 335 375 415 465 Caa/CCC+ 450 460 470 495 505 515 545
  18. 18. <ul><li>The following graphs give you an idea of the yield of corporate bonds and treasury bonds a/o 3/01/2010 </li></ul>Us Treasury And Corporate Graphs
  19. 19. Yield Curves over 5years
  20. 20. Historically Corp. vs. Treasuries <ul><li>10yr+ AAA bonds vs. Treasuries on average 90 basis pts over. </li></ul><ul><li>2. BBB bonds trade on average 210 basis pts over. </li></ul>
  21. 21. Govt. vs. Corp.
  22. 22. InterNote <ul><li>Registered brand name of Incapital LLC. </li></ul><ul><li>For debt issued using its underwriting and distribution platforms. </li></ul><ul><li>2. Created for smaller individuals(buy and hold). </li></ul><ul><li>Issued by both large and small corporations. </li></ul><ul><li>Most have a survivor option and noncallable. </li></ul><ul><li>Best used for buy and hold(laddering) strategies. </li></ul><ul><li>Internote dealers provide a secondary market. </li></ul>
  23. 23. Recap <ul><li>Most efficiently used by HNW investors in tax deferred accts. </li></ul><ul><li>Fully taxed at all levels. </li></ul><ul><li>Understand the dynamics of the issue. </li></ul><ul><li>Know how it is priced over treasury bonds. </li></ul><ul><li>Check and see how the underlying stock price is performing. </li></ul><ul><li>Corporate bonds, not highly correlated to junk or treasury bonds- good diversification tool. </li></ul>
  24. 24. Recap <ul><li>Treasury/corporate spd , shrinks or expands more on econ. Conditions then I.R. move. </li></ul><ul><li>Another avenue for the HNW investor to diversify their portfolio and create a dynamic and income producing portfolio. </li></ul>
  25. 25. CONTACT INFO <ul><li>Matt Kraus </li></ul><ul><li>Managing Director </li></ul><ul><li>Kruse Asset Management </li></ul><ul><li>312 627 0072 </li></ul><ul><li>[email_address] </li></ul>
  26. 26. Why owning treasuries can be very different this decade <ul><li>Treasuries returned 13.7% and -3.6% in 2008 and 2009 respectively. With 61% foreign ownership you should carefully review your future decisions. The Federal reserve printed record amounts of new debt during 2009. How will this impact your future returns? Pros and cons of treasury ownership discussion with Matt and I. Join us. </li></ul><ul><li> </li></ul><ul><li>(Apr 27 th - 11 am Central) </li></ul>
  27. 27. Contact <ul><li>“ Helping America one business, one non-profit and one family at a time“ </li></ul><ul><li>Amir Homayoun Rafizadeh, MBA </li></ul><ul><li>Managing Director of Client Education </li></ul><ul><li>Kruse Asset Management – </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul><ul><li>Matt Kraus </li></ul><ul><li>Managing Director of Fixed Income </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul>
  28. 28. Asset management with a difference Ethics Expertise Education