The article below suggests that investors should use long-term treasuries (TLT) for portfolio diversification. In fact, TLT has been the most effective asset class in offsetting losses when equities crash.
In the crash of 2008, the S&P 500 (SPY) lost 37% while TLT gained 34%. During the technology crash from 2000 to 2002, SPY lost 38% while TLT gained 47%.
TLT also helps to protect your assets from technology driven deflation. See how the investable benchmark portfolios have used treasuries to deliver exceptional performance this past decade.
ETF PM currently has long positions in TLT.
Don’t Overlook This Bond ETF as a Portfolio Diversifier
Eric Balchunas, 8/14/14
Diversifying your portfolio sounds simple. To balance out risks, you add some international stocks here, a little real estate there, maybe a commodity fund. But with asset classes moving more in concert in recent years, it’s harder to find investments likely to zig when others zag.
Recent articles point to ETFs tracking gold and corporate bonds as the “last diversifiers.” Another fund deserves to be on that list: the iShares 20+ Year Treasury Bond ETF (TLT). It has better performance numbers than gold and corporate bond ETFs, and its consistent returns have not tracked the stock market in the short- or long-term.
The reason TLT isn’t on everyone’s list of good diversifiers is simple. Most people expect interest rates to rise over the long run, and long-term Treasuries are particularly sensitive to rate increases. If and when rates rise, the Treasury bonds in TLT will be worth less because they pay less interest than the newer bonds. In an environment where the economy’s growing, stocks are rising and rate increases seem imminent, TLT has some strikes against it.
Click here for the full article.
