Ibrahim Velutini explains current scenario of yields
The economist and capital market specialist, CEO of Intelinvest, talks about what an investor can do with his money
A topic of great importance on which questions arise worldwide are the yields of government bonds, which have fallen to very low levels, and it is a worrying reality that remains for most investors, as Ibrahim Velutini, economist, capital market specialist and CEO of Intelinvest remarks.
This video-interview refers to the subject and the expert Ibrahim Velutini offers details about what is currently happening with the returns.
“The truth is that today there are 17 trillion dollars in bonds in the world with a negative rate yield. That is similar to saying that you buy a bond in 100 dollars and in the end they will return 99.5. Some people say it is like paying for the security of placement, but at the same time it also implies or reveals that governments (and in particular European ones) have been injecting big amounts of money to boost their economies.”
It indicates that the European Central Bank (ECB), for several years now, has been carrying out stimulus programs, known as quantitative easing (QE), aimed at the purchase of public debt assets of several governments to give greater liquidity.
“Under normal conditions if a closed economy has two assets, and there are 100 dollars worth of each other, then each one represents 50 dollars; if you make them grow to 200 each one is worth 100 dollars. But in the case we analyze it, what is happening is that there is no inflation in these scenario because it is being reflected in other aspects such as: the value of real estate, vehicles, boats, etc.”
While this inflation has been controlled, these governments have managed to continue injecting money with the hope that there will be a greater consumption and – in return – production so that new jobs are created. “But this is not happening. Europe is experiencing a flat growth; and the US trade war with China will not help because it creates volatility in terms of performance,” says Ibrahim Velutini.
He underlines that today a 10-year American Treasury bond yields 1.73% on average. “In order to keep his economy growing rapidly, although it is not ideal, president Trump seeks to lower interest rates so that credit is cheaper; but the truth is that consumption is not increasing.”
“How can an investor, who lives from income, invest in 10-year American bonds with such low yields?,” says the CEO of Intelinvest.
“The difference between low risk and high risk assets is almost marginal now. That is a problem because when you want to reverse part of this, default situations will appear,” says the inmterviewed.
Investment opportunities
Velutini comments that until three months ago Argentina was a “tremendous investment opportunity” but it was influenced by political tensions regarding the presidential primaries.
“Another interesting case is the Ecuadorian one, where the bonds remain at 107% in the middle of the conflicts, with regard to the economic measures and fuels.”
The other alternative is corporate bonds, where a bond from companies like Apple yields 2%, says the interviewee.
“This low performance is going to stay or extend for a season,” said the specialist.
Some alternatives to take actions could be diversifying investments and considering structured notes. But it is a must to have the advice and support of experts.
The average of Intelinvest’s portfolios has been yielding 4%, considered as high, where the portion they maintained in Argentina was yielding over 2%.
“You have to bet on diversification. If you manage to make a combination of countries, and you make a mix of bonds with several corporate ones, then you can deal with a moderate risk and with yields between 3 and 5%,” he said.
“We have been looking for defensive assets. They are coverage or defense bonds. We are betting on electricity and gas companies that are much more stable over time to create notes that are around 7 and 8% with a moderate risk level.”
Intelinvest is a company dedicated to financial advice, whose purpose is to work so that its clients achieve their financial freedom through its various investment services. According to the needs of the clients, this Securities Company allows the patrimonial protection through trusts, access to low cost returns thanks to the acquisition of bonds and shares, make capital appreciations, as well as getting involved in corporate finance operations.
With information from DobleLlave
