Years ago, and I mean many years ago, it became apparent that bond portfolio managers rarely sold bonds in their portfolio. Sure, active managers might sell something to keep their active manager label active, but rarely did a bond manager sell bonds in the portfolio to meaningfully move the needle on their holdings. If a manager did not like the market, she could enter a derivatives trade to place her bet instead.
Another reason for the never sell mentality in bonds was the fact that more money usually came in the door. When bonds perform well, investors tend to stick with it or even add funds. Combine all this with the other fact that bonds do mature, and bond portfolio managers are usually in the position of deciding where to invest cash rather than the prospect of selling bonds to raise more cash.
This has been the case for decades, though there may have been some managers slow in the 1980’s and early 1990’s to warm up to the fact that we were in what would become a multi-decade bond bull market. While the rise in the bond market has not been straight up, I would argue, from a portfolio management standpoint, it might as well have been. Bond portfolio managers have largely been reluctant to sell even prior to the large swoon in the financial crisis of 2007. If anything, the recovery since has largely reinforced the idea of never sell anything.
(more…)
