An exclusive interview with a contrarian who has been correct on interest rates and the value of U.S. Treasury bonds for years, Kessler Investment Advisors’ Robert Kessler.
WEALTHTRACK Episode #1313; Originally Broadcast on September 14, 2016
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KESSLER: PENSION PORTFOLIO
Buy zero- coupon, long-term Treasury bonds
Bond manager Robert Kessler specializes in U.S. Treasury securities as a profession, but in his spare time he and his wife, who have travelled extensively in Asia, have developed expertise in other areas, one being Japanese ceramics. The Kesslers’ collection is part of a soon to be opened exhibition at the Denver Art Museum.
One of the most popular acronyms on Wall Street in recent years is TINA: “There Is No Alternative”. In this case the theory is there is no alternative to investing in stocks and other asset classes traditionally thought of as being risky because you can lose money in them.
With so called “risk-free” assets such as Treasury bills yielding close to nothing the TINA approach to investing has become ever more popular. As investors around the world search for income, dividend paying stocks in particular are being touted as a desirable alternative. Many companies are making them even more so. According to The Wall Street Journal “…payouts at S&P 500 companies for the past 12 months amounted to almost 38% of net income…the most since February of 2009”, in the throes of the financial crisis.
Some companies such as Pfizer, Alcoa, Kellogg and Kraft Heinz have actually paid out more than they have earned in the past 12 months.
Standard and Poor’s reports that dividends have increased at double-digit rates for each of the past five years. They are forecasting low-to-mid single digit growth this year but predict dividend payouts will still reach a quarterly record of $100 billion in the third quarter. Heaven forbid you should hold Treasury securities with their near historic low yields!
Not so, says this week’s guest, Robert Kessler. He is Founder and CEO of Kessler Investment Advisors, a manager of fixed income portfolios specializing in U.S. Treasuries for institutions and high-net-worth individuals globally. Kessler has been extolling the virtues of U.S. Treasury bills, notes and bonds in portfolios for as long as I have known him, which is nearly two decades. So far, with a few short lived exceptions, they have not disappointed.
Over the past twenty years the benchmark 10-year Treasury note has delivered an average annualized return of 6.2%, the 30-year Treasury bond an 8.1% return, and one of Kessler’s favorite Treasury securities, the 30-year U.S. Treasury strip, a 14.2% return. All are competitive with the S&P 500’s 8.3% return, with a lot less volatility – plus at maturity you get your principal back.
Why does Kessler vehemently object to TINA? You will find out.