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A Tactical Bond Fund With a Twist

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With interest rates at historic lows it’s hard to find attractive yields in investment grade bonds. Moreover, the longer rates remain low, the harder these bond funds will be hit when interest rates rise. Hence, if it weren’t for stocks, portfolios would almost certainly have a difficult time posting respectable returns.

Because stocks are sensitive to economic contractions, with first quarter GDP near zero (and some believe it will be revised to a negative number), stocks may not be all that helpful in the near term. Cash? Need I say anything about that?

Now for the good news. Last week I attended a webinar presented by BTS Asset management. The following day, I spent over an hour on the phone with a BTS representative and we discussed one of their funds in detail. In this post, I’ll share the information I learned with you. I believe this may be an excellent addition to a client’s portfolio. The fund I’m speaking of is BTS Tactical Fixed Income A (BTFAX). 

BTS manages a total of three mutual funds. Two of them are identical and will be merged in the near future. If I recall correctly, one was an institutional fund (or SMA) and the other a retail fund. BTS employs a tactical approach on the fund and will be fully invested in U.S. Treasuries, high yield or cash at any given point. In 1981, the fund invested in cash and high yield. In 1996, BTS added U.S. Treasuries. 

If you were to look at annual fixed income returns from 2004 through 2013, you would find high yield and Treasuries would be near opposite ends of the performance spectrum in each of these years. However, as I said, BTS will move in and out of high yield, Treasuries and cash during the year based on a model they’ve established using a series of technical indicators. These technical indicators are used to ascertain the trend of high yield and U.S. Treasuries. BTS reassesses the models score on a daily basis to determine how they will invest. In addition, if the fund loses 3%, they will liquidate the positions, go to cash and preserve the principal. Also, when the fund rises they will employ trailing stop orders to protect the downside. I should also mention that the fund may invest at any point on the yield curve. 

In summary, it looks like a fund which deserves serious consideration.