In an earlier post on First Data Corporation (FDC), I hailed the expertise of David Swensen, the investment chief at Yale University. I favorably compared his assessment of FDC to my own and include him as one of my cochamim "wise ones."
Friday's Bloomberg reports on his latest forays. After dropping nearly $6 billion or 25% in 2008, Swensen's best opportunities for investments are not in the "credit world." He says that "everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.”
He does caution “You want to make sure you’re with companies that have the ability to survive in a really tough economic environment” while declining to name any of the companies.
His selection of bonds rather than stocks is sensible, given an extraordinarily high level of cash payouts described in the article. But his commitment to this approach does point to where the best returns are likely right now: high-yield, high quality corporate bonds.
First, these bonds will deliver high cash yields without regard to valuation. Second, these bonds are priced with a high coupon, providing some hedge against high inflation returning. Third, these bonds are higher in the capital structure than stocks, but priced at stock-like returns.
No comments:
Post a Comment