Aug 19, 2021
Even among rational investors with diversified portfolios, there
seems to be less known about the inner workings of the bond portion
of their investments. Here on the show today to help us get a
better understanding of fixed income investments is none other than
Dave Plecha, Global Head of Fixed Income at Dimensional Fund
Advisors. Dave is one of the authorities on the subject of bonds
and is amazing at articulating the concepts at play in this arena.
This conversation goes in-depth, but is also a great starting point
for investors to begin thinking about this part of a portfolio, and
deepen an understanding of something that is so often misunderstood
or misused. As you will hear, Dave has a real passion for this
subject and has been presenting and speaking on precisely this work
for the last twenty years. We cover a lot of ground with Dave,
talking about why his approach might be confused with a certain
type of market timing, the impacts of inflation, the current low
interest rates and if these affect bond investments, an explanation
of forward rates, and so much more that you will not want to miss.
We even find time for a quick story about Dave's early days working
with Eugene Fama, so make sure to stay tuned in for that.
Key Points From This Episode:
- Assessing the role of bonds in a portfolio, in relation to the
current low interest rates. [0:02:30.3]
- Concerns over negative interest rates for bond investors.
- Bonds and real returns; the impact of inflation on Canada's
- Dave's perspective on the argument for long bonds as
diversifying assets. [0:15:39.4]
- Comparing and contrasting the bond market with the stock
- The trading of bonds and what differentiates it from trading
- The volatility of last March and Dave's reflections on trading
during that period. [0:27:17.8]
- Differentiating Dimensional's approach to bonds from the other
big firms'. [0:29:21.7]
- The primary factors that influence expected returns in fixed
- Understanding forward rates and the information they provide
about expected returns. [0:37:26.7]
- Building better investing strategies using forwards rates.
- Clarifying expected premiums for maturity in a variable
maturity strategy. [0:44:06.7]
- Dave explains why market timing does not work with regard to
fixed income. [0:46:30.4]
- Quantifying the differences in expected returns from the index
and Dimensional. [0:51:01.7]
- A great argument from Dave for maintaining a diversified
approach to all investments. [0:52:31.51]
- The connection between present observable credit spreads and
future realized payments. [0:55:48.5]
- The game-changing development of Trace in the bond market.
- Applying the Dimensional approach as a do-it-yourself investor.
- A great story from Dave about his early days working with
Eugene Fama. [1:10:25.2]
- How Dave defines success in his life and work these days.