Search found 6 matches

by ggeorge
Sat Aug 20, 2016 10:41 am
Forum: Investing - Theory, News & General
Topic: How to create a bond proxy?
Replies: 11
Views: 1526

Re: How to create a bond proxy?

Thank you all for the replies. I have been thinking of this puzzle for almost a week now and somehow thought there's a mathematical way I can create synthetic equivalent. Now I am convinced there is no easy way to do that other than to employ some kind of bond strategies to match maturity,duration, convexity etc to produce approximate results. Actualy, to go back to your original post, you are on the right track. Figuring out the right percentage of IEF and TLH (if you are using iShares ETFs) that gives you the same average duration as a 10 year treasury will do the trick and is not difficult at all. Your results would get less predictable if you used ETF with average maturities far away from 10 years, such as using a combo of SHY and TLT....
by ggeorge
Fri Aug 19, 2016 9:21 pm
Forum: Investing - Theory, News & General
Topic: How to create a bond proxy?
Replies: 11
Views: 1526

Re: How to create a bond proxy?

Thank you all for the replies. I have been thinking of this puzzle for almost a week now and somehow thought there's a mathematical way I can create synthetic equivalent. Now I am convinced there is no easy way to do that other than to employ some kind of bond strategies to match maturity,duration, convexity etc to produce approximate results.
by ggeorge
Fri Aug 19, 2016 1:17 pm
Forum: Investing - Theory, News & General
Topic: How to create a bond proxy?
Replies: 11
Views: 1526

Re: How to create a bond proxy?

Steve,
Yes, there are several reasons not buying it directly but I am not listing it here as it not part of this discussion.

-george
by ggeorge
Fri Aug 19, 2016 1:12 pm
Forum: Investing - Theory, News & General
Topic: How to create a bond proxy?
Replies: 11
Views: 1526

Re: How to create a bond proxy?

Rob,

Traditionally a 10 year t-bond has a annualized return of about 5% with a standard deviation of 7.5. I want to create a synthetic equivalent using an ETF fund such as TLT(or a combination of TLT, TLH, IEF etc..). All I know is the TLT fund has an average maturity and duration (Morningstar link: http://portfolios.morningstar.com/fund/ ... ountry=USA ).

So if I compare 10 year t- bond with TLT, the credit quality remains same but the main variables affecting the return and risk(Standard deviation) are maturity, duration, interest rate etc. So I am assuming using these variables, I should have a way to compare different securities.
by ggeorge
Fri Aug 19, 2016 11:41 am
Forum: Investing - Theory, News & General
Topic: How to create a bond proxy?
Replies: 11
Views: 1526

How to create a bond proxy?

Hi, This is probably a very basic question but I am having a hard time in figuring it out so I thought of sending it to this expert forum. Here's my question. I am trying create an equivalent(or proxy) of 10 year US treasury bond using ETFs. Out in the market I see various etfs such as TLT, TLH, IEF etc with varying maturities and durations. From what I understand, a 10 year treasury bond has a duration of 9.1 years and these etfs have the following average effective durations TLT: 18.19 years TLH: 10.15 years IEF: 7.63 years [Values taken from Morningstar.com] With my limited knowledge in bonds, I am thinking that I can create a proxy for 10 year bond by dividing the 10 year bond duration by the ETF duration. As an example, if I use TLT as...
by ggeorge
Wed Sep 18, 2013 12:49 am
Forum: Non-US Investing
Topic: Avoid the dividend tax on foreign investors [Hong Kong]
Replies: 43
Views: 8372

Re: Avoid the dividend tax on foreign investors [Hong Kong]

Has anyone thought about short selling Put options to avoid withholding tax situation?. In general, dividends are factored into the put option, therefore you can short sell the same number of puts with expiration up to 1 year.(this is synthetically equivalent to a covered call). Brokerage fees for option selling is typically higher, however you can find some good brokerage firms who offer 10-15 cents/contract. So it's not that significant when compared to the 30% withholding tax. Any thoughts??