How do you choose the best bond funds or bond ETFs from the bewildering array of products available?

Many investors find bonds deeply unintuitive – and the asset class’s inflation-fuelled crash in 2022 hasn’t exactly inspired them to dig deeper.

Yet a solid allocation to high-quality government bonds remains the first stop when it comes to strategically diversifying a portfolio dominated by equities.

And that remains true even after last year’s once-in-a-generation carnage, when those hoped-for diversification benefits truly failed to show up.

Interest-ing bonds

It seems like a good time to take a deep breath and a step back.

We’ve previously explained the purpose of bonds within a passive investing portfolio.

For UK investors, it boils down to investing in UK government bonds (known as gilts) and/or the government bonds of other developed markets. Such bonds are the likeliest to cushion your equities when stock markets plunge. And that’s just what we want our bonds for. (Equities can deliver the long-term returns – provided we hold on to them…)

We believe the best bond fund vehicles are ETFs and index funds. That’s because their low fees leave more return in the pockets of investors – as opposed to fat-cat fund managers. (See below for more on the ‘ongoing charge figure’, or OCF).

We’ll explain our choices below, but first let’s run through our picks for the best bond ETFs and bond index funds. We’ll do gilts first, and then global government bonds further below.

Best bond funds and ETFs – UK gilts

Source: Fund providers’ data / Morningstar (A dash means data not provided).
YTM is yield-to-maturity. ‘Lux’ is Luxembourg.

These are intermediate gilt ETFs and funds because, for most investors, intermediates offer a better balance of risk versus reward than long bonds (far riskier) or short bonds (a miserly reward).

Dedicated long or short bond allocations will be right for some people, though.

• We’ve previously explained your broader options and delved into how they behave.
• You can find more product suggestions in our low-cost index funds and ETFs guide.

There is little to separate the funds in the table. That is just as it should be! Competition between index tracker providers is fierce, so most advantages have by now been eroded away.

You can be confident you’re in the right ballpark so long as you choose a cheap bond ETF or bond fund, with a good track record among its peers.

More on that below. But first a couple of notes about the bond features picked out in the table.

Ongoing Charge Figure (OCF)

The OCF is the annual cost of the product charged to you by the fund provider, as a percentage of your holding. So if you own £10,000 worth of a fund then a 0.1% OCF means you’ll pay around £10 in fees.

Lower charges are always better. Costs matter.

Duration

Average duration is an approximate guide to how much a bond fund will gain or lose in response to a 1% change in market interest rates. 

For example:

• A bond fund with a duration of 10 will lose around 10% of its market value for every 1% rise in its interest rate.
• The fund’s price will similarly jump about 10% if its rate drops by 1%.

The higher a bond’s duration, the greater the capital gain or loss as its market interest rate fluctuates.

The market interest rate of a bond is not the base rate set by the Bank Of England. The market interest rate is a product of supply and demand for each individual bond on the bond market. If the Bank Base Rate is hiked by 1%, that doesn’t mean every bond will follow suit.

Yield-to-maturity (YTM)

The expected annual return of your bond fund is its current yield-to-maturity.

This number will fluctuate as bond prices move. But the main takeaway is that there’s nothing between these products. (Note that when we refer to yield in this article, we’re talking about YTM).

Credit quality

This is a guesstimate of the financial strength of the bond issuer. (That’s the UK Government in the case of the gilt funds in the table above.)

AAA is top-notch while BBB- sets the floor for investment grade. Below that is ‘junk’.

The higher the credit quality rating, the better. It means there’s less chance the issuer will default on payments, at least according to the bond rating agencies.

Bond rating systems and verdicts vary slightly by agency but our main message would be to stick to investment grade.

In other words, don’t touch someone else’s junk.

Bond fund credit quality is the weighted average of all its bonds ratings.

Domicile

Location matters because funds based in the UK benefit from FSCS investment protection. With that you could be eligible for compensation should your investment provider go bankrupt.

True, it’s highly unlikely that you’ll ever need to worry about this provision, especially given the scale of the giant fund shops in our table. But it’s a wrinkle worth knowing about.

Moving on, how have our best bond funds performed this past decade?

Best bond funds and ETFs – UK gilts results check

Source: Trustnet multi-charting tool

We’ve expanded our product scope for this performance check. Partly because doing so illustrates some useful points about bond funds, and partly to again show there’s little to choose between good index trackers.

We’ve highlighted the candidates’ 10-year annualised returns (nominal) within the green box because the longer the timeframe, the more meaningful our comparison.

The cyan lines underscore the main indexes tracked by the best bond funds.

With friends like these…

One thing leaps out immediately from our performance check: bond returns over the period have been absolutely terrible.

A near-zero return over ten years – and stiff losses over tighter time periods – does make you wonder why you’d bother with bonds.

The fact is that unfortunately the entire asset class was smashed in 2022 as interest rates surged and rising bond yields inflicted heavy capital losses.

But counterintuitively, the prospects for bonds are much brighter now that yields are higher (and prices lower).

The reason for this is that bond yields are predictive of future expected returns. If inflation subsides to its historic norm (around 3%) then the yields quoted above would deliver a bond return slightly ahead of its long-term average of 1.4% (real, inflation-adjusted return).

In other words, bonds are now priced to deliver a reasonable return for a defensive asset, even as they also fulfil their primary role as a stock market diversifier.

How things change

When we first wrote this article in May 2021, bonds had delivered excellent 10-year returns but their low yields warned of trouble ahead.

The table below is a nice demonstration of how low yields can correlate with excellent backward-looking returns but auger grim returns in the future.

This representative fund had a terrible yield in May 2021. But its returns over the previous 10-years had been superb:

Fast-forward to September 2023 and you can see the situation has completely reversed. The yield is healthy again but the 10-year returns are awful (because rising yields cause bond prices to fall).

September 2023’s 0% return over ten years is the fulfilment of May 2021’s low yield prophecy.

Boiled down, yield is the best guide we have to an intermediate bond fund’s expected return over the next decade.

No guarantees, but the asset class’s potential has largely been restored by the bond market dumping that’s burned investors – even as it causes so many to now avoid bonds like sewage on a UK beach.

Here for the duration

Back to our results check. You might look at the table and think the Vanguard UK Government Bond Index fund is the last place you want to be. After all, it’s earned nothing for a decade. And it looks worse than the rest of the field across the other timeframes, too.

Yet the same fund’s 10-year returns were ahead of the pack just two years ago! It’s table-topping performance then – and relegation form now – is mostly due to the longer duration of its holdings.

A higher duration juices your holdings when bond prices rise (and yields fall) but acts as a ball-and-chain when prices fall (and yields rise).

In other words, there’s nothing inherently wrong with either of these Vanguard bond trackers. If prices rise from here then they’ll leapfrog back up the rankings.

That makes the Vanguard pair the best bond fund choice in our table for recession protection, incidentally.

But opt for a shorter duration fund if you think interest rates can only go up or inflation continue to rise – or if you want to dial down the volatility in your bond allocation, even at the cost of some potential gains.

How to compare best bond fund and ETF results

The duration issue helps illustrate why choosing your bond fund isn’t as simple as picking the one that has scored a few extra drops of return at a particular moment in time.

A fraction of a percentage point makes little odds, and it doesn’t tell us which tracker will nose ahead next year or next decade.

Here’s what I’m looking for when I look at the performance table:

• Firstly, are any of our comparable bond funds doing something highly unusual? If one product is way ahead of the rest – or completely off the pace – then perhaps it’s not what we think it is. Deviant behaviour is a cue for further research.

In this instance, the trackers are all relatively evenly matched across five and ten years, once you factor in duration differences.

• I completely ignore one-year and three-year time periods if I’ve got better data. I never compare funds over one-year anyway. That’s too short to tell you anything meaningful. Longer is better.

Now turning to the indices…

• Are our potential best bond funds a good match for their respective index over time? (I’ve underlined the 10-year index return rows in cyan). You’d expect an index tracker to slightly lag its index, after costs.

If a bond tracker is a smidge ahead of, or behind, its index then no matter. But if it lags then strike it off your short list – begone HSBC UK Gilt Index!

You have reason to suspect one index is inferior to another? Then you can sweep its adherents off the table too.

Most intermediate gilt funds follow the FTSE Actuaries UK Conventional Gilts All Stocks index. The Invesco and SPDR Gilt ETFs moon after the Bloomberg Sterling Gilts Index, while Vanguard’s twosome chase Bloomberg’s float adjusted benchmarks.

Here again, the 10-year returns show that the indices are close competitors – with the ‘float adjusted’ index’s shortfall explained by its longer duration holdings.

Where does this leave us?

The sweet spot is getting the blend of features you want from your bond fund at a low cost. It’s only worth factoring in the returns snapshot if one tracker looks consistently superior to the rest.

There’s no point being derailed by minuscule performance differentials if you want a UK-domiciled fund that is available on zero-commission dealing with your broker.

If you’re specifically after a bond ETF (rather than a mutual fund) then the Lyxor gilt tracker is dirt cheap and has edged its index over 10 years. It was second only to the Vanguard UK Government Bond Index fund in 2021, too, despite its shorter duration.

The Invesco ETF is a touch cheaper but it doesn’t have a long-term track record yet.

The 10-year returns of the SPDR Gilt ETF look fine, but it’s twice as expensive as its cheaper rivals. I’d knock it out on that basis because high costs are a proven drag factor.

Finally, the Vanguard trackers are the way to go if you want their extra duration.

Best bond funds and ETFs – Global government bond (GBP hedged)

Source: Fund providers’ data / Morningstar (A dash means data not provided).
YTM is yield-to-maturity. ‘Lux’ is Luxembourg.

The choice of global government bond funds and ETFs has exploded since we last looked in 2021. Costs have been slashed by new entrants and there’s even an ESG contender from UBS.

The downside is that only the two older iShares and Xtrackers products have a long-term track record – which is why they crest the table. The Amundi and Abrdn index trackers will notch up three year records shortly, whereas the iShares Overseas fund only launched in August 2023.

Meanwhile, the UBS ESG effort is consigned to the bottom because the Swiss bank hasn’t yet published some very basic information. (Note the blanks in our table.)

Something also seems off about the very low yield published by Abrdn, but that’s the figure it has given. I think I’d rather take a higher yield from one of the other funds, considering they’re not exposing me to much (if any) more risk.

(Incidentally, I’ve had to edit the product names to fit the the table so make sure your choice is badged GBP hedged when you select it from your broker. Some of these funds have unhedged variants but the right product will always have GBP hedged in its name.)

Now let’s do a results check before talking about why you might plump for global government bonds over gilts.

Global government bond (GBP hedged) results check

Source: Trustnet multi-charting tool

Remember, the main objective in comparing results is just to make sure there isn’t a weird outlier on the shortlist. We also want to see if any fund is consistently dragged down by hidden costs.

But the truth is we don’t have much to go on anyway because most of the products are quite new.

What we do know is that intermediate global government bond funds are typically shorter duration than their UK counterparts. That helps explain why they haven’t suffered as much as gilt funds in the sell-off.

Well, that and the fact that interest rate rises have been sharper in the UK.

Global government bonds versus gilts

Diversifying across global government bonds came into vogue in the aftermath of the Great Recession as many countries lost their cherished AAA credit ratings – the UK among them.

As government debt balloons, many investors prefer not to rely on the full faith and credit of their home country.

Strangely, so-called global government bond funds usually hold developed market sovereign debt only.

But that’s actually a good thing because the role of your bond allocation is to lower your overall portfolio risk. So steer clear of global funds that hold much more volatile emerging market bonds.3

What about the underlying indexes? It’s hard to get good information, but factsheets are out there.

As global bond funds are about spreading your bets, it’s worth knowing that the FTSE World Government Bond Index (Developed Markets) is the most diversified by country, followed by the JP Morgan GBI Global Index, and finally the FTSE G7 Index.

On that front, you might ask why would you ever go for a 100% gilts fund4, given the diversification benefits of global government bonds?

Well, you might because the gilt trackers are less costly to own, have a higher yield, and may offer marginally more crash protection to UK investors.

But ultimately that’ll all be cold comfort if the UK state’s finances do eventually go pop. Granted, that’s a nightmare scenario. But it’s also one that once seemed far less plausible than in recent times.

Don’t take currency risk

If you opt for global bonds then make sure you pick a fund that hedges its return to the pound. Doing so removes currency risk from the defensive side of your portfolio, if you’re a UK-based investor.

While currency risk may sometimes be viewed as a positive and diversifying factor for equities, the same is not true for government bonds.

Currency exchange rate fluctuations add volatility to your returns. Government bonds are there to lower it.

Some investors leave their global bonds unhedged. But betting on exchange rates is an advanced move. It’s only justifiable if you really know what you’re doing.

We’ve looked at the mixed bag of evidence for this ploy before in a US Treasuries vs Gilts post.

Don’t sweat the small stuff

From a big picture perspective, any of the index trackers gracing our tables of best bond funds (and bond ETFs) tick the right boxes.

I’ve touched on a few key details to consider. But even those differences will likely prove marginal across many years of passive investing.

The most important investing decision is diversifying between equities and government bonds in the first place.

Choose a competitive bond index fund or ETF as the main brace of your defensive asset allocation and you’ll be on the right course.

Further reading:

• To help you read a bond fund webpage
• Decode tricky bond terms lingo
• For best global tracker fund suggestions

Take it steady,

The Accumulator

Note: Earlier comments below may refer to our 2021 take on the best bond funds. We’ve left them standing for reader interest, but please do check the dates before replying!

1. Float Adjusted [↩]
2. Float Adjusted [↩]
3. You might want a dollop of emerging market bonds for other reasons. If so, we suggest you draw from your equity allocation. [↩]
4. That is, a UK-only fund. [↩]

What caught my eye this week.

There’s something weird about 2023 – which is that nothing bonkers has happened. (Yet?)

I mean just compare the past nine months to last year’s UK mini-Budget mania or Russia invading Ukraine. The pandemic years before that of course. And before that, Donald Trump becoming the US president, or the witless, self-harming, and implausible Brexit.

I suppose we have had the AI frenzy. Which has very possibly put us on course for our ultimate extinction as a species. And even until then, a browser tab on your desktop can now write better than you on almost any subject you can think of, which is pretty crazy. Albeit the output is full of lies.

Then again, so were the Brexit and Trump episodes and that didn’t stop the craziness.

Come on Elon Musk! Cage fight Mark Zuckerberg!

You guys with your pussy-footing are making 2023 feel inadequate.

Four seasons in one day

Most of us don’t remember things being this perma-bonkers in the past.

On the other hand maybe we’re just more aware of the craziness – with newsfeeds and TikTok and viral memes and flashmobs endlessly pumping it all to the surface like an angsty volcano.

But renowned financial writer Felix Salmon argues this is the ‘new not normal’.

In one of five insights from his new book shared by the Next Big Idea Club this week, Salmon writes:

You might think that everything is weirder and more unexpected than it used to be, and you are right. It turns out that with hindsight, there was this very unusual period of calm for about 70 years, from roughly 1945 to 2015. Then 2016 happened, with the election of Trump and the Brexit vote in the UK, there was a rise of unpredictable politicians and movements around the world. After that, COVID hit in 2020. At this point, all of the big post-war structures that were keeping volatility down and making things more predictable had pretty much evaporated. We are now back to what you could think of as “normal” in the 19th century, the 18th century, or even the 17th century. Life was much less predictable in those days.

For most of the 20th century, we lived in a world where someone like Warren Buffett could come along with one big idea and say, “I’m going to make a big bet on America being great, and that one big bet will always be true, and it’s going to make me the richest man in the world.” That is not a world we live in anymore. The world we live in is much more unpredictable, it has much fatter tails, much higher upsides, and lower downsides. We need to be nimbler to navigate it. We can’t just believe one thing that is always going to be true. We’re going to have to update our beliefs, and we’re going to have to get used to a level of volatility, both in terms of climate change, in terms of infectious diseases, and in terms of the economy. That is going to be pretty disconcerting.

Too right it will Felix. For me and my portfolio.

The book is called The Phoenix Economy. Given the consistent excellence of Salmon’s output over the years, I might just pick up a copy.

Then again, maybe I’ll re-read Generation X instead. Douglas Coupland’s classic ‘tales for an accelerated culture’ will surely feel sleepy by comparison, and that feels somehow reassuring these days.

Have a great weekend.

[continue reading…]

Any naughty active investor who hasn’t yet read The Intelligent Investor by Benjamin Graham should probably put down this blog and go pick up the latest edition of that classic. 

The Intelligent Investor was published 70 years ago. Yet somehow it still seems relevant for every generation.

Indeed one schmuck by the name of Warren Buffett has called it “By far the best book on investing ever written.” 

True, much of The Intelligent Investor is outdated. And you’ll read nothing in there that you can’t find rehashed on the Internet.

Yet there’s still something uncanny about its relatively ancient wisdom. The voice of Graham describing a different time and place does make you think twice about the markets today.

I suppose it’s like seeking solace in the 2,000-year-old Meditations of Marcus Aurelius.

A lover of the classics, Graham might well have liked that analogy.

Known as The Dean of Wall Street, the original value investor considered his time better spent ‘conversing’ with the long-dead philosophers of Athens – the ‘eminent dead‘, as Buffett’s sidekick Charlie Munger calls them – rather than engaging in Wall Street tittle-tattle.

Certainly more so than making money.

Getting richer was low on Graham’s priority list by the end of his professional life.

The even more intelligent investor

Despite his enduring writing, the real reason we still know about Benjamin Graham is of course because he was Buffett’s mentor.

Graham taught the world’s sometime richest pupil how to kickstart a fortune by buying unloved companies trading at less than book value.

A survivor of the Great Depression, Graham called these companies ‘cigar butts’.

The idea was to find a company with enough value left in it to get a last puff by realising its assets. Just like a 1930’s hobo might enjoy a discarded stub. The profit could come through other investors re-rating the shares when they too saw the value. Other times, Graham got hands-on as an active investor. He did this via his proto-hedge fund: the Graham-Newman Corporation.

Pioneering stuff. But by the end Graham didn’t see much point in most other people trying.

An interviewer for the Financial Analysts Journal asked Graham in 1976: “Can the average manager obtain better results than the Standard and Poor’s Index over the years?”

“No,” replied a man who made millions from inefficient markets and taught others how. “In effect that would mean that the stock market experts as a whole could beat themselves – a logical contradiction.”

Graham also pointed to the market-lagging performance of many active fund managers. Investors might wonder why they paid these professionals so much more than the new-fangled ‘indexed funds’ that were just then appearing.

By the 1990s even Buffett had reached a similar conclusion.

Benjamin and the bear

I was thinking about Graham the other day, as I mused to myself about how long the bear market in my own portfolio has persisted.

Next month – barring some impossibly unlikely miracle – will mark two years since my portfolio peaked on a unitised basis.

I’m still down around 20%.

My net worth slump adds to the pain, thanks to swan dives in the price of assets I don’t count within my actively-tracked portfolio. Stuff like unlisted private investments and Bitcoin.

Yes, I could bump up my personal balance sheet by adjusting for the alleged increase in value of my flat.

My home is, after all, also an investment and an asset.

But the truth is I don’t trust my bank’s recent robo-assessment of my flat’s price appreciation since I bought in 2018. (In fact, I still slightly mark it down in my net worth spreadsheet).

All told, not the prettiest picture for someone on the wrong side of halfway through his investing journey.

Down but not out

Does my 24 months hacking sand in the bunker bother me?

Yes and no (and yes again!)

In the old days I wouldn’t have cared at all. I usually loved buying during market routs.

This time is different, partly I suspect because my earnings – and hence my fresh savings – are very modest compared to a portfolio that’s been pumped-up by two decades of (overall) strong returns.

I think it also feels different because usually I fare better during market declines than my deadly rival benchmark – a global tracker fund – and this time I’ve done worse. Blame those US mega-tech cap stocks that have bounced back faster than anything else – and against all precedents – to pump up the US index.

Finally, I made a hash of the dip-buying that I did begin in late 2021.

I actually anticipated the market froth stage quite well, and had positioned myself accordingly. But I misjudged how pessimistic markets would get about most stocks, and bought back in too early.

Honest mistakes

Being an active investor who meticulously tracks their returns means you can’t fool yourself for long.

Yes, any active investor must expect periods of underperformance.

Even the (few) great market beaters have them. Benjamin Graham underperformed on occasion. Buffett too has lagged for years at a time.

But I know I played the good hand I had given myself badly at the start of this decline.

An unforced error. When that happens it’s hard not to wonder if you’ve lost your edge.

Benjamin Graham and Mr. Market

One reason late 2021 to early 2022 went off the rails for me is that – in retrospect – I think I got cocky about my ability to read the machinations of Mr Market.

A mister who, conveniently for this post, is yet another legacy of Benjamin Graham.

In The Intelligent Investor Graham wrote these classic lines to anthropomorphise the capricious market:

Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometime his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposed seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price and equally happy to buy from him when his price is low. But the rest of the time you will be wise to form your own ideas of the value of your holdings, based on full reports from the
company about is operations and financial position.

Graham’s ‘Mr Market’ parable is still regularly cited. Even more so after it resurfaced in the Buffett biography The Snowball. All but the newest Monevator readers will be familiar with the concept, and many with the Mr. Market term too. That’s how enduring his metaphor has become.

However familiarity can breed contempt.

Having made several successful market calls over the years (here’s one) I got cute in late 2021 and supposed I could perhaps understand what unpredictable Mr. Market was up to.

But I couldn’t!

So I bought stocks that were down 50% that fell another 30-50%. Not with anything like all my money. But with enough for a prang that took off the wing mirrors and more.

Mr. Market and me

The bigger picture – more relevant to the majority of passive investors who read Monevator – is that one should not let Mr. Market’s mood swings get to you.

I was wrong (so far) in contrarily betting against him.

But it’s usually even worse to go all-in along with him, whether it’s by loading up when he’s euphoric or by dumping the lot when he’s on one of his historic downers.

Remember the pandemic doom-fest of March 2020?

Do not sell, my co-blogger semi-famously wrote.

That was the more important (and potentially more wealth-preserving) message than the one I wrote with the sun shining a month before, that warned giddy investors that the good times wouldn’t last forever:

A proper prolonged crash will come again. That isn’t a reason not to invest – bear markets are part and parcel of enjoying the gains from shares – but it is a reason to make sure your portfolio is robust to all reasonable scenarios.

Most of the time, for most people, sticking with the plan through everything will prove more profitable in the long-run than trying to white-water raft along the market’s ebbs and flows.

(Perhaps I’m discovering that’s true for me too…)

Benjamin Graham is not bovvered

I re-read another passage from Benjamin Graham last night. One that’s less well-known.

Living through the Wall Street Crash of 1929 – and eventually prospering again in its aftermath – helped Graham reach his then-novel perspectives on bull and bear markets, as we’ve seen.

So he had the scars to prove it when he wrote:

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book [that is, his portfolio], and no more.

Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.

That man would be better off if his stocks had no market quotations at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgement.

I tried to say this in my early post about buying in bear markets, but it took me thousands of words.

It seems unfair Benjamin Graham should be both a brilliant writer and an investing legend!

Anyway ignore the noise and other people’s opinions. That’s the takeaway.

In Graham’s day, noise was the gossip around Wall Street bars and in the newspaper reports. What he’d make of CNBC is anyone’s guess.

Still contrary after all of these years

Incidentally, I followed up that post about the inevitably of a bear market in February 2020 with one the next week that centred on one of Benjamin Graham’s own personal favourite quotes:

Many shall be restored that now are fallen and many shall fall that now are in honour.

(It’s from Horace. Not Jim Cramer or Bill Ackman.)

In my article, I wondered how long the tech stock super-rally could continue. As things turned out it still had a bumper of a year left in it, thanks to pandemic pandemonium and a final splurge for free money.

But fast-forward to today, and many beaten-up tech stocks remain in the dumpster. High-growth tech holdings still weigh down the portfolios of UK investor favourites like Baillie Gifford’s former high-flyer Scottish Mortgage.

This despite a huge rally in those truly giant technology companies.

In addition, non-US markets – and in particular UK shares – look relatively far cheaper. Call me stubborn, but I cannot see this continuing forever.

Consider this recent chart from Fidelity:

Of course, while CAPE valuations – yet another Graham innovation – are the best predictor of long-term returns we have – low CAPE being better – they are far from foolproof.

But there are other reasons to think that the US market is overdue a period in the doldrums. Such as the fact that historically, market yings tend to eventually yang, and vice versa:

Source: Hartford Funds

Make America de-rate again

The US has been on a winning streak for a dozen years. It feels inevitable, but history says it’s not. And I’m betting that way too.

I do own US growth stocks, but aside from Tesla I currently have very little exposure to the ginormous tech behemoths. And I’ve got all sorts of other odds and ends from other markets around the world.

Then again, maybe it is different this time? Perhaps we’re moving to some dystopia from the mind of Philip K. Dick where half a dozen $10 trillion companies rule the world?

Or maybe it’s a transition to a utopia of abundance – once nuclear fusion and AI reach their zenith – as imagined by the likes of Ian M. Banks.

Well maybe. More likely the US market is out over its skis.

Time will tell.

p.s. If after all this you’re intent on guessing when our current bear market has ended, you might want to read the thoughts of a more contemporaneous oldie, Jim Slater.