Lyons Leadership

Last year was not a good year for most investments except for US Treasury Bonds. For retirement-oriented investors, the question remains as to what to do next. Many people wonder where decent rates of return can be found with minimal risk.

Many investors are wondering if Treasuries will be the best choice for 2009. Not likely, according to Pimco Chief Investment Officer Mohamed El-Erian, who advises against owning those types of bonds since they have become too expensive. Andrew Bary punctuated that same sentiment in a Barron’s article, (January 5, 2009: http://online.barrons.com/article/ ) entitled, Get Out Now.

With Treasuries out of the picture, what other asset classes offer any hope for this year? Our research, and others commenting on this situation, point to four investment classes. We have already published an article on the fourth one, so we will concentrate on the first three. Here are all four classes we have examined.

* Mortgage Backed Securities * Treasury Inflation-Protected Securities-TIPS * Municipal Bonds * Investment Grade Corporate Bonds

1. Yields on mortgage-backed securities have been declining ever since the Federal government November 2008 announcement that it would purchase up to $500 billion of Ginnie Mae, Freddie Mac and Fannie Mae home mortgage-related bonds. But with the purchases just beginning in January, current yields of this battered asset class still look attractive relative to historical levels. Also, with the Fed’s intervention, mortgage-backed securities now offer effectively the same Federal guarantee as U.S. Treasuries, but with higher yields. Consider iShares Barclays MBS Bond Fund (MBB), iShares Barclays Agency Bond Fund (AGZ) and SPDR Barclays Capital Mortgage Backed Bond ETF (MBG).

The TIPS products, Treasury Inflation Protected Securities, are impacted by inflationary or deflationary trends. Recent fears about deflation have negatively impacted TIPS prices, but this may present a good time to buy TIPS. Looking forward, with many believing our Federal stimulus packages will result in substantially higher inflation, TIPS may appreciate. TIPS really shine during inflationary periods. Advisors currently are suggesting (TIP) iShares Barclays TIPS Bond Fund and (IPE) SPDR Barclays Capital TIPS.

3. Tax-free Municipal Bonds are approaching attractive levels compared to US Treasuries. For example, investment grade munis with their current 4-5% tax-free rates, are comparable to taxable yields on certificates of deposit that pay 6-7%. Among the worthy products to consider are the following: (PZA) PowerShares Insured National Municipal Bond Index Fund, (TFI) SPDR Lehman Municipal Bond ETF and (MUB) iShares S&P National Municipal Bond Index Fund.

Investors also may look to regional choices. California is arguably one of the prominent arenas for political and economic opportunity. With the advent of stimulus packages earmarked for infrastructure, one could anticipate more Federal assistance for California. One offering to investigate is Barclays (CMF) iShares S&P California Municipal Bond Fund.

If your overriding priority is safety, you should look into (PRB) US Market Vectors Pre-Refunded Municipal Index ETF. This ETF uniquely invests only in pre-refunded municipal bonds. These bonds are issued to pay off existing bonds with higher rates and have the equivalent of a full US government guarantee of interest and principal.

The fourth asset class we reviewed for safer retirement income is the investment grade corporate bond approach. At their current prices, corporate bonds are still a bargain. We are witnessing portfolio managers, insurers and brokers loading up on high grade corporate bonds because they believe that the government bailout programs may lead to fewer corporate defaults. For more details on the corporate bond funds strategies, read the www.AboutETFs.info article on 15 asset classes at this link: http://www.aboutetfs.info/Monthly-Income-Strategies.php .

In future articles, we may examine two additional income-producing asset classes: senior loans and preferred stocks. But for now, your best bets for principal safety and steady income seem to be mortgage-backed securities, Treasury inflation protected securities (TIPS), municipal bonds and high-grade corporate bonds.

Strategies mentioned in this article carry no guarantee or implication of success. There is no solicitation to buy or sell securities implied or suggested by Alpine Strategies or its staff. Your decisions to act upon our opinions should be carefully weighed based upon your investment objectives, and you should consult with a professional advisor prior to making any investments.