Kraft Asset Management, LLC (KAM) offers a bond-trading platform, through our strategic partner, BAM Advisor Services, LLC (BAM) that gives our clients the opportunity to compete on a level playing field with the institutional investors. This platform provides fair pricing and access to a wider selection of bonds.
Based on the Federal Reserve’s ‘Flow of Funds’ statistics, institutional investors hold a vast majority of all bonds in the United States. Because of the size and frequency of their trades, institutional investors have access to a much wider array of bonds — at fairer prices — than do individual investors.
KAM’s goal is to manage our clients’ fixed income portfolios in a way that seeks to maximize net returns (after taxes, fees and expenses) while being consistent with clients’ financial objectives and risk tolerance. With support from BAM, KAM provides the following trading services for our clients who invest in individual fixed income securities:
- development of an individualized fixed income investment plan that outlines strategies specific to each client
- wholesale pricing through a competitive bidding process using multiple broker/dealers
- access to a large pool of securities through multiple bond broker/dealers
- an emphasis on high credit quality, short-to-intermediate term securities
- reduction in uncompensated risks by focusing on specific characteristics (e.g., investment grade, sector concentration, geographic diversification)
- on-going credit monitoring of bonds held by our clients
- consideration of tax rates on recommendations.
What you may not know
Bonds are usually seen as stable, low-risk investments and are too often just an afterthought in investors’ holdings. They are supposed to be the “safe and sound” portion of your portfolio. But today’s fixed income market has grown increasingly complex, with hidden risks and unstable securities. There are more than two million different municipal bonds, compared with approximately 10,000 listed stocks on the major exchanges. Many people don’t understand what they are buying, and most aren’t aware of the hidden markup costs.
Individual investors may not know how risky certain bonds can be. They may be subject to defaults, downgrades, early calls and more. There are a variety of distinct risk factors that should be accounted for. Every detail is important to understanding a bond’s real value and overall characteristics.
The bond market is a price-negotiated market. With equities, you can quickly determine the value of a security: simply check the Internet. With bonds, there is no centralized pricing information. Prices for the exact same issue can vary widely, depending upon the broker. True costs are easily hidden from individual investors, allowing brokers to place excessive markups or markdowns on their transactions. Brokerage firms generally sell bonds from a selection that is held in their inventory. This means that buyers don’t get a real picture of the selections available throughout the competitive market, and bonds in inventory usually carry a higher markup.
Should you be thinking about a new strategy for your fixed income investing? Find out how KAM would approach it. Contact us today for an independent assessment of your current fixed income plan or additional details about investing strategies. Call (615) 782-4286.