هل ما زالت السندات تلعب دوراً مستقراً في محافظنا الاستثمارية؟

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00:00This program is brought to you by ADFX.

00:20In light of the recent fluctuations in the bond market and the waves of losses in the past two years,

00:30a fundamental question arises. Are bonds still playing a stable role in the investment capital?

00:36Historically, bonds have provided income and benefits.

00:40Did they also leave this role?

00:42With the sharp increase in interest rates,

00:44did the rules of the game change?

00:46What are the signs that emerged in 2022 when we saw bonds fluctuating with other risky stocks and assets?

00:54Is it just a coincidence or a sign of a fundamental change in the financial markets?

00:59The most important question is how can we adapt to this change?

01:02What are the effective strategies to manage the investment capital at times like these?

01:08I am happy to welcome Zaina Rizk, the co-founder of Capital Partners.

01:16Zaina, welcome.

01:17Thank you.

01:18Usually, the topic of fixed income is a boring one for some investors, especially beginners.

01:25But it is a very interesting topic.

01:28Of course.

01:29Zaina, we started by looking at fixed income or bonds today in the financial capitals.

01:36We asked our viewers if these bonds are important in the financial capitals.

01:42The answers were very different.

01:45Some see them as always necessary at 21%.

01:50It is not necessary.

01:51Also, the percentage has increased by 24%.

01:53Perhaps they were harmed in 2022 when bonds were strongly refunded.

01:59And some see them as important depending on the economic situation.

02:03First of all, are bonds important in the financial capitals?

02:11Of course.

02:12Bonds are important in the capitals, but their percentage changes depending on the objectives.

02:18Why?

02:19How old is the investor?

02:21What is the goal of his capital?

02:23What is the goal of it?

02:26Does he have a deadline to pay in the future or not?

02:31And the percentage also changes depending on where we are in the economic cycle.

02:36For example, the economic situation now puts bonds in a better position than equities,

02:43although we can see from the beginning of the year that there has been a big increase in the bond market.

02:48But I think that we will not continue with this trend.

02:56Here we will discuss a very important topic, which is the relationship today.

02:59You pointed out the increase in bonds and equities.

03:02It is supposed to be a reverse relationship, or at least not related to maintaining or reducing the fluctuations in the financial capitals.

03:11But if we look historically and go back to 1926,

03:18and we look at the performance of the investment capitals,

03:23a capital that has 100% bonds and 0% equities,

03:27a capital that has 60% bonds and 40% equities,

03:31or 60% bonds and 40% bonds,

03:34we notice that during that period,

03:38of course, this is according to the US market,

03:41the US bonds and equities of US companies,

03:44we notice that the investment in bonds alone was about 10.3% as an equivalent,

03:54although the fluctuations were also much higher.

03:58The fluctuations were only in the bonds,

04:04we saw a 43% decline,

04:07while if the bonds were more, the fluctuations were less.

04:12I always look at this chart and say,

04:15if my grandfather, or my grandfather's father, invested in a capital in 1926 with 100% bonds and 100$,

04:21the capital would have reached a million dollars today,

04:24but unfortunately, he bought land and oil in it.

04:27Of course, there is always a tendency to change in the performance of bonds and equities in some cases.

04:35But today, according to the age of the investor,

04:42how is it supposed to be, and what kind of bonds?

04:46The composition that we studied in the textbook, which is 60% and 40%,

04:50is now becoming more and more,

04:54because as I said, their returns were very correlated,

04:58which is not supposed to be,

05:00because before this high correlation,

05:02there was the exceptional period that followed after 2008,

05:06when the Federal Reserve started to raise interest rates in 2022.

05:12During this period, we had a huge amount of money in the markets,

05:15which led to an increase of 2% at the same time,

05:18and the interest rates in America were 0%.

05:21The only way for bonds to return was an increase in the price,

05:26which is not supposed to be,

05:28because it is a fixed income,

05:30it is the coupon that we get every 6 months, once a year, or quarterly.

05:35Why is their volatility less?

05:38Because of what is called mean reverting,

05:40which means that the bond is issued at a certain price,

05:43and then during the lifetime of the bond,

05:46the prices may rise and fall,

05:49but if there is no default,

05:52at the end of life, or at the maturity,

05:54the interest rates will go up again.

05:57100% plus the coupon that we got.

06:00Correct.

06:01However, those who had long-term bonds,

06:07if we look at this chart,

06:10we notice that in the 80s,

06:13until about the year 2020-2021,

06:17we had a rising market,

06:20which lasted for more than 30 years.

06:23The return on these investments was about 6.3%,

06:28a real return.

06:31It was close to the returns of stocks, sometimes.

06:35Until the year 2022 came,

06:38and we witnessed this decline,

06:41and I think it was the worst year for bonds.

06:45Can this happen again?

06:49So what happened,

06:51before COVID-19,

06:55the Federal Reserve was raising the interest rates.

06:59We started with a proper economic cycle,

07:02then we had COVID-19,

07:04and the central banks around the world

07:07started to invest in low interest rates,

07:10and we went back to zero.

07:12There was a very high rate of inflation,

07:15and the Federal Reserve said that this inflation

07:17could be fought in an easy way,

07:19which turned out to be wrong.

07:21We were at a point where the rate of inflation was very high,

07:25and they had to raise the interest rates in a very strong way

07:29to fight this inflation.

07:31That's why there was such a high rate of inflation in one year,

07:34and that's not what led to the negative return.

07:37Do we expect this to happen again next year?

07:40Of course not.

07:42If the Federal Reserve didn't lower the interest rates this year,

07:46we don't think the interest rates will increase again.

07:49So when the interest rates go up,

07:52this has a negative effect on the stock market,

07:55and vice versa.

07:57Before, if you bought an investment grade,

08:01which is the stock of the highest economic capacity,

08:06it used to give you roughly 2%.

08:09Now it's giving you 5.5% or 6%.

08:11This shows that even if the interest rates didn't go down,

08:14even if the stock price didn't go up,

08:16even with this, you still have, as they say,

08:18your pay-to-weight,

08:20the carry you're taking.

08:22When the Federal Reserve starts to lower the interest rates,

08:26this also has a positive effect on the stock market.

08:29So 6% is still a tempting return for the stock market.

08:33We haven't seen this for many years.

08:36But the most important question today,

08:38when we look at the stock market,

08:40it's not just about the income,

08:44but also to diversify the stock market.

08:47But if we look at the past few years,

08:50we've seen a discrepancy in this performance.

08:53At times, we've seen close relations,

08:56at times, it was the opposite.

08:58But when we look at the last three years,

09:01we see that the relationship between the stocks and the bonds

09:04is very close.

09:06It goes up together and goes down together.

09:08This is what we've seen so far.

09:11Why has this relationship become like this,

09:13and will it change, in your opinion?

09:15The relationship has become like this

09:17because of the main reason,

09:19which is the increase in liquidity in the markets.

09:22As we said, the interest rates were at zero,

09:25the only way,

09:27and there was a lot of money supply from the central banks,

09:30which is not called quantitative easing.

09:33This money supply led to everything going up at the same time.

09:37Why is it still like this?

09:39Because in the bonds market,

09:41there are people who say,

09:43you are paid to wait,

09:45because you can either invest,

09:47or put it as a deposit in the bank.

09:50The deposit in the bank is now giving 5%,

09:52but after six months or a year,

09:54it will decrease by 5%.

09:56So if you go into the markets now,

09:58and wait, it will give you roughly 6%.

10:00At the same time,

10:02the economy is still very high,

10:04and inflation has become lower than it used to be,

10:07which is positive for the stocks,

10:09which is leading to an increase for both at the same time.

10:12But will this continue? I don't think so.

10:14When the Federal Reserve starts to lower the interest rates,

10:17which will be the result of,

10:19most probably, a decline in the economic growth,

10:22this has a negative effect on the stock market,

10:25and a positive effect on the stock market.

10:27So the relationship is not as normal as it used to be.

10:30We always try to provide advice

10:32to the investors,

10:34especially those who are new to the world of investment.

10:37Even when I was in the Finance Department,

10:39I always advised the investors

10:41to be a part of the Federal Reserve with the bonds.

10:43If they don't like it at the beginning of their career,

10:45it's not a problem.

10:47Today, if you are in your early 20s,

10:49and you are starting a new job,

10:51you just need to focus on the stocks.

10:53But of course,

10:55we have reached the age of retirement,

10:57which I think is a very important thing.

11:00And even if we are far from retirement,

11:02we need to raise money to buy a house,

11:04to pay the rent,

11:06to buy an apartment.

11:08It is also necessary

11:10to be a part of the Federal Reserve

11:12with the bonds,

11:14so that we have liquidity,

11:16and at the same time,

11:18we are not at risk of this capital.

11:20Do you have any advice for the investors?

11:22The advice I just gave is very correct.

11:24The bonds are necessary,

11:26and diversification is necessary.

11:29Percentages differ according to age

11:31and according to all objectives.

11:33And also,

11:35investors know the stocks better.

11:37For example,

11:39if you tell them to invest in Microsoft,

11:41they know it.

11:43But if you tell them to invest in a Microsoft maturity bond

11:45in the age of 25,

11:47it becomes more complicated.

11:49But as you said,

11:51they need to invest in the bonds,

11:53because not only can it give returns,

11:55but it can also increase its prices.

11:57So, the correlation of the bonds and stocks

11:59will decrease,

12:01and it will be positive for both in the portfolio.

12:03Thank you, Ziana Rizk,

12:05the company and the co-chairman

12:07for the stable income of Capital Partners.

12:09Thank you very much for this interview.

12:11Thank you.

12:13And watch us to send any suggestions

12:15or questions.

12:17You can send them to us

12:19on the website chiffred.almal

12:21at cnbcaribbea.com

12:23See you next week in a new episode.

12:25Thanks for watching.

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