The Bond Blues

March 20, 2020 |Investors turn to bonds to provide stable cash flow and offset the volatility of stocks. Bonds are viewed as investors’ safe money, and with good reason. The graph below shows that since the inception of the Bloomberg Barclays U.S. Aggregate Bond Index in 1976, there have only been 3 calendar years in which the Index had a negative total return—the worst of which was in 1994, which experienced a negative return of -2.92%.

The beauty of owning individual bonds is that if they are held to maturity and the issuer doesn’t default, one can determine the cashflow each bond will generate down to the penny and sleep better at night knowing that their return should be positive.

Source: Bloomberg

This doesn’t mean that there haven’t been periods of time when bonds have struggled—there certainly have been. During times of panic, bonds can be scary, too. Fundamental shifts like a rise in interest rates or the deterioration of an issuer’s credit profile can cause bonds to decline in value. Sometimes, bonds can decline in value when investors panic and redeem their fixed income mutual funds. When this happens, fund managers are forced to sell. As the graphs below indicate, there has been a great deal of involuntary selling being done by mutual fund managers.

We believe the current dislocations in the bond market, which have been brought about by mutual fund selling, create opportunities for active managers like Clark Capital, who own individual bonds. Similar opportunities were created in the panic selling during the energy driven sell-off in corporate bonds in 2015 and early 2016, after the election in 2016, and in the fourth quarter of 2018.

In our opinion, investment grade corporate bonds and high-quality municipal bonds have been sold in order to calm panicked investors’ frayed nerves. In essence, investors have thrown the baby out with the bath water, and as an active manager, we have the opportunity to be there to catch it.

A sell-off in the fixed income markets or a rise in rates may lower the account value for the individual bond holder. However, if held to maturity, and the issuer does not default, the bonds mature at par value.

We believe an actively managed, individual bond portfolio may offer important benefits during temporary dislocations in the marketplace, allowing managers to opportunistically buy attractively priced bonds. As always, we believe the best way for investors to achieve their financial goals is by sticking to their long-term investment plan and not letting swings in the market steer them off course.


Past performance is not indicative of future results. The opinions expressed are those of the author(s) or the Clark Capital Management Group portfolio manager(s) that manage the strategies or products discussed herein, and do not necessarily reflect the opinions of all portfolio managers at Clark Capital Management Group or the firm as a whole. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. There is no guarantee of the future performance of any Clark Capital investment portfolio. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. For educational use only. This information is not intended to serve as investment advice. This material is not intended to be relied upon as a forecast or research. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. Past performance does not guarantee future results.

The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

This document may contain certain information that constitutes forward-looking statements which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology (or the negative thereof). Forward looking statements cannot be guaranteed. No assurance, representation, or warranty is made by any person that any of Clark Capital’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Clark Capital Management Group, Inc. reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. The information provided in this report should not be considered a recommendation to purchase or sell any particular security, sector or industry. There is no assurance that any securities, sectors or industries discussed herein will be included in an account’s portfolio. Asset allocation will vary and the samples shown may not represent an account’s entire portfolio and in the aggregate may represent only a small percentage of an account’s portfolio holdings. It should not be assumed that any of the securities transactions, holdings or sectors discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Clark Capital Management Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Clark Capital’s advisory services and fees can be found in its Form ADV which is available upon request. CCM-500


K. Sean Clark, CFA®

EVP, Chief Investment Officer

Glenn Dorsey, CFA®, CAIA®

SVP, Head of Client Portfolio Management