Hahn’s Mordy: T-Notes Safe; Biotech Better

Olly Ludwig
July 24, 2012

Talk of a bond bubble is off the mark, but it’s pretty clear T-notes are yielding too little to be attractive, Hahn Investment Stewards’ Tyler Mordy says.


Tyler Mordy, a financial advisor with Canada-based Hahn Investment Stewards, has been saying for a few years now that long-term yields will be pinned to super-low levels for a quite a while, as the developed world works its way out from under a mountain of debt.

But in an interview with IndexUniverse.com Managing Editor Olly Ludwig, Mordy stressed that his ETF-only firm isn’t rushing to put clients in Treasurys.

Instead, Hahn is looking at alternative sources of yield, such as sovereign debt from the emerging markets or REITs. He also said Hahn is gravitating toward investments that can buck the slow-growth trend, such as equities focused on biotech and gold miners.


Ludwig: You’ve been putting clients on the long end of the yield, to the extent that that makes sense in their particular asset allocation plans. There's a lot of worry about a bond bubble these days. Give me some nuance into your thinking.

Mordy: First of all, talking about bond bubbles is quite ludicrous—or, I should say, has been ludicrous over the past few years. No. 1 is that bubbles don’t form when an asset class is so despised. People who fail to see that don’t know the definition of a bubble.

Secondly, there has been this unhealthy obsession with the supply of bonds without an equal focus on the demand side of the bond side, which is just faulty analysis. And that’s the same analysis that went wrong in Japan for years. What we’ve seen there is that the decline in the Japanese government bond yields over the last 20 years—even though deficit spending has been spectacular—the debt-to-GDP ratio there is now over 200 percent.

But again, the focus is on the supply side, rather than the demand side; or, I should say that an equal focus on the demand side has been missing.

Ludwig: Let’s talk about that demand, because that’s part of the bond-bubble argument, that one fine day the U.S. Department of Treasury is going to have an auction, and nobody will show up. That’s the over-the-top, worst-case scenario. So what is it about the demand that makes it so persistent, so constant and so underestimated?

Mordy: The big thing is the demographic wave that’s happening right now. So it’s the baby boomer demographic which now has said, “Cash isn't king; cash flow is king.” It comes down to that. The demand side is overwhelming the supply side. Advisors can see this in their own practices.



Investors plowed money into currency-hedged equity funds like ‘HEDJ’ and ‘DBEF’ on Wednesday, March 4, while yanking assets out of sundry bond funds, such as ‘HYG.’ Total U.S.-listed ETF assets dropped to $2.084 trillion as a market pullback offset net inflows.

Sizable outflows from various iShares bond funds paced that firm’s outflows on Wednesday, March 4. Total U.S.-listed ETF assets ended the day at $2.084 trillion.


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