Here is an interesting NY Times commentary highlighting the need to re-think our traditional methodologies for generating income within the portfolio. Clearly, we at Birchmere Advisors are in agreement with many of the observations highlighted in the article. This sentiment is increasingly visible to the public eye – and rightfully so, as the wave of principal loss has begun. Investors are losing precious capital invested in bond markets due to expected changes in the interest rate environment.
Though not cited in the aforementioned article, peer-to-peer lending offers a diversified method to participate directly in debt markets without the exposure to loss of principal that is inherent in traditional bond funds. The infrastructure and scalability of the online direct lending model must leave investors reconsidering the age-old assumptions concerning the risk profile of bonds – and even more so, public bond funds. Investors generally hold debt securities for downside protection and income. Bond values are supposed to be intrinsically tied to the borrower’s ability to pay. Yes, interest rates, durations, etc., all should and do impact the value of bonds – but then, are they truly “fixed income” securities? We suggest it’s time to reinvent the framework – the direct lending model makes the return of true fixed income a real possibility for today’s investor.
That’s some food for thought. Regards,