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CIP Quips

Passive is Passive

Whats in the news:

Dennis Gartman, editor and publisher of the well-respected and widely circulated industry newsletter, The Gartman Letter, recently gave an interview discussing his outlook for bonds, interest rates and what bothers him in the market. 

When asked whether investors should even bother owning bonds in the current market environment, he responded with, “anything over, let's say, 10-year Treasury’s—the answer's probably no. I think the propensity for interest rates to be higher—not dramatically so, but higher over the course of the next six months to two years—is very strong. I think rates will be up 25 to 50 basis points from here…. The impact of a 25- to 50-basis-point rally in the long end is going to be detrimental, but not materially so. So owning a shorter-term security is probably fine.”

Gartman went on to discuss a topic that he and his peer group have found particular confusing and concerning: passive investments. “What bothers me, and what bothers most pros, is that, with all the money that has flowed into passive investment, everybody in the public seems to think that when prices go down 5%, they'll be spared. No, they won't…Passive is passive….The rush to passive has now become almost bubble-like in material. And bubbles almost always burst. And when they do, they burst quickly and they burst violently. I think people should take a look very seriously at reducing their exposure to passive investments.”

Effective Federal Funds Rate
(7/1954 – 7/2017)

 

What are we thinking?

Gartman’s thoughts on interest rates and owning long term debt are similar to ours. In our search for enhanced current income, we believe the shorter duration structure of our intermediate investment grade portfolio should benefit from a rising rate environment. While we believe that attempting to forecast rates is a futile exercise, rates will rise eventually. As active managers, we seek to provide value by remaining cognizant of current trends, making reasonable and informed expectations of Fed announcements, and diversifying in preparation for interest rates to trend higher. 

 

Additional Source: wealthmanagement.com



This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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