Written by John Lounsbury
Econintersect: Last week Van R. Hoisington and Lacy Hunt were featured in Barron’s with an article that recounted their outlook for the bond market. The details of their analysis will be no surprise to GEI readers as they have been regular contributors several times a year since July 2011. The two manage very successful U.S. government bond portolios for Hoisington Investment Management (HIM) in Austin, Texas, with more than $5.5 billion in assets.
Barron’s provides some details about the investment management success that HIM has achieved by weighting their portfolios to the long end of the yield curve using extensively treasuries with durations of 20 years or more:
Hoisington has ridden the secular decline in government bond rates and the handsome concomitant rise in bond prices to annual compounded returns of 7.9%. This exceeds the annual returns of the S&P 500 over the same decade and lays waste to the performance of the bond industry bogey, the Barclays Capital Aggregate Bond Index, up just 4.4% a year in the same period. Moreover, the $375 million mutual fund that the company subadvises, the Wasatch-Hoisington U.S. Treasury (ticker: WHOSX), has finished in the first and 11th percentile of Morningstar’s Long Government fund rankings for the past 10 and five years, respectively.
There have been rough patches along the way. Barron’s mentions a 15% drawdown for Hoisington funds in the sharp bond collapse of 2013 when possible default by the U.S. government was alarming fear mongers. But in the following year the funds were up 30%. Such volatility is not the norm for U.S. treasuries but Lacy Hunt told Barron’s:
“We tell potential clients – pension funds and the like – that if they can’t embrace this volatility, not to put money with us. They must accept our macroeconomic view of long-term trends, namely a continuation of sluggish economic growth and limp inflation in the U.S. and around the globe, weighed down by surging levels of private and public debt. We’ve been playing these themes since 1990, to some outside derision on Wall Street and elsewhere, and our current analysis indicates that these trends will remain in force for some time to come.”
The Barron’s article reviews the economic factors that have led Hoisington and Hunt to expect lower treasury yields in the coming year. The quick review may be a worthwhile summary but the detailed analysis, always presented with copious graphical data, can be examined in detail in their GEI articles (list of recent articles below).
Recent Articles by Van R. Hoisington and Lacy Hunt:
Consequences Of Asymmetry In Monetary Policy (GEI Investing, 16 January 2016)
Why Long-Term Government Bonds are A Buy (GEI Investing, 15 October 2015)
Bond Market Value (GEI Investing, 14 July 2015)
Characteristics of Extremely Over-Indebted Economies (GEI Investing, 20 April 2015)
Long U.S. Treasuries Will See Lower Yields in 2015 (GEI Investing, 24 January 2015)
