It was a jarring headline early this year, atop a Marketwatch op-ed penned by a University of California economist: “Where have all the safe havens gone?”
If nothing feels safe as the topsy-turvy markets of 2019 head into the historically unpredictable month of October, one harbor typically used to shelter retirement savings — bonds — has dredged additional space to accommodate the rising tide of exchange-traded funds since the 2008 market crash.
Alongside gold, bonds have long been regarded as a stable alternative to markets for investors savvy or lucky enough to cash out of stocks that sink along with the broader markets during downturns.
Andrew Agemy, whose Agemy Financial Strategies in Guilford advises people on their retirement strategies, says bonds are still the “tried and true” best bets for riding out downturns, given the fixed return with interest they represent as promised by government bodies, corporations and other entities.
But the bond market has evolved in the current cycle — and the returns can be impressive in their own right, Agemy adds.
“With fixed-income investing there’s a whole universe of options out there,” Agemy says. “Recently we sold some bonds that we’ve owned for six months that our clients made 15 percent. … People are able to reduce the risks substantially and still have good returns.”
Hoping to hedge their bets even further, more investors are turning to exchange-traded funds that are made up of fixed-income bonds, an adaptation of a rapidly rising tide for stock-based ETFs in the current economic cycle.
Wealth managers like Vanguard and Fidelity create exchange-traded funds by lumping specific stocks into a single security and trading them on an exchange. As an example, a $5.2 billion aerospace and defense industry ETF managed by BlackRock’s iShares division includes stocks for major conglomerates like United Technologies Corp., Connecticut’s largest employer, as well as Raytheon, which is merging with UTC; Sikorsky Aircraft parent Lockheed Martin; and General Dynamics and its Electric Boat shipyard in Groton.
The iShares ETF has stakes in smaller aerospace companies as well, such as Stamford-based Hexcel, which makes composites for aircraft fuselages; RBC Bearings in Oxford, which makes ball bearings that reduce friction in rotating parts on aircraft and weaponry; and Fairfield-based gunmaker Sturm Ruger.
How did that particular ETF do in the Great Recession, you ask? Better than the overall stock market — but not by much. After debuting in May 2006 and climbing 43 percent in 18 months, iShares’ aerospace ETF had given back those gains by October 2008, and by the following March would plunge to — you guessed it — 43 percent below its original value.
While that was 5 percentage points better than the stocks of UTC and Raytheon over the same period, you would have done better with your money in General Dynamics alone, whose stock sunk just 30 percent.
Plenty of investors appear to think that ETFs could represent a safer investment than plain stocks, though, particularly “value” ETFs pegged to stocks of companies whose products or services sell in good times and bad — food and household staples, health care and utilities, to name a few.
Meanwhile, bond ETF in-flows were $25 billion that month to push the totals for the first half of this year to a record $72 billion, according to a Fidelity analysis citing data from BlackRock, pushing global bond ETF investments to $1 trillion.
That still represents just 1 percent of all bonds outstanding globally, but it’s getting more popular — and in an area of investing your parents and grandparents turned to in past down markets.
“It’s not sexy but it works really well,” Agemy says of bond investing. “It’s going back to the old-fashioned way of growing your money. … With fixed income investing, there’s a whole universe of options out there.”