If you want to play the stocks versus bonds game in the long term, you’ll have to wait a long time—a really long time, according to recent academic research. In the meantime, traders can use exchange-traded funds (ETFs) to play the stock-bond divergence.
“Financial planners often tell clients that, so long as they hold on long enough, stocks should do better than bonds. But how long is long enough — 10 years, maybe 15? Try 150 years,” a MarketWatch article noted.
“That isn’t a typo,” the article added. “According to research posted recently on the Social Science Research Network, the bond market outperformed the stock market in the U.S. from 1793 to 1942 (see chart, below). The research was conducted by Edward McQuarrie, a professor emeritus at the Leavey School of Business at Santa Clara (Calif.) University, who has spent years reconstructing the history of U.S. stock and bond returns.”
For short term strength in stocks over bonds, traders can use ETFs like the Direxion Daily S&P500 Bull 3X ETF (SPXL ). SPXL seeks daily investment results, before fees and expenses, of 300% of the daily performance of the S&P 500® Index.
The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is a float-adjusted, market capitalization-weighted index.
Trading Long-Term Treasury Moves
For traders who want to capitalize on the moves in safe haven Treasury debt in the long end of the yield curve, they can look at the Direxion Daily 20+ Year Treasury Bull 3X ETF (TMF ). TMF investment seeks daily investment results, before fees and expenses, of 300% of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index.
The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is a market value-weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than 20 years.
“It does appear the attractiveness of government bonds over recent history has been underappreciated by many,” a Forbes article noted. “Especially when stocks are compared to fixed income investments of equivalent duration.”
