Boosting our Returns in the Flexible Income Folio

GWM Flexible Income Folio

Yields have been rising on certain bonds the last few days, on the twenty year US Treasury in particular. Since price moves inverse to yield, the price of these bonds have been falling. Corporate bonds have been having difficulty as well. The volatility of bonds in general has been an issue for our Flexible Income Folio.

All GWM Model Portfolios have money allocated to the The Flexible Income folio. Golden Years has a 70% allocation, In-Betweener 50% and the Go-Getter folio has a 25% allocation. I have had to become more active in the management of this folio due to the increased volatility of traditional bonds.

I have been seeking to diversify by acquiring positions in different types of income related assets, i.e., convertible bonds and preferred stocks. This has helped.

Another method of battling periods of negative performance in bonds is to hedge the folio with inverse instruments such as the ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT).

TBT is a powerful tool, but must be used with precise timing because it is a leveraged double edged sword.

Last week I took a 10% TBT position in our Flexible Income folio. We generated a quick 5%+ return in just a few days. I closed it out on Friday, but will be using it periodically in the future when clear opportunities present themselves.

Trade Analysis

My decision to go long was based on the use of the Effective Volume Indicator and a heads up by it's creator Pascal Willain. The following charts shows that the big boys (Large Players) were buying TBT while the general investing public (Small Players) were sitting idle. Most of the time it is wise to follow the big money. They can and do move the markets.

ProShares UltraShort Lehman 20+ Year Treasury ETF

 

 

(Click on the charts for easier viewing)

1 Minute Chart with Effective Volume Indicator

 

 

TBT Daily Chart

 

Nice Three Day Gain