My Bonds Selection Process
Our most important criteria in selection of bonds is quality of issuers.
Ideally we prefer companies that have more cash than debt. This means that companies can afford to pay off all of its debt if they want to.
=> However such companies are rare.
=> Alibaba, Allianz, Biosensor (bond is called back), Coach, Genting are some examples.
If not, we find companies with healthy earnings, generates free cash flow and have manageable debt levels.
=> Such as eBay, Global Logistics Properties, Discovery Communications, Prudential PLC etc.
We also like bond issuers that have powerful shareholders. So if the company is in need of help, the powerful shareholders will come to rescue.
=> Such as China Cinda, Huarong Finance, Qingdao City Construction Investment etc.
Then we look through their list of bonds and choose ones that we think are worth buying.
Ideally we prefer shorter maturity and pays decent yield. But most of the time, decent yield comes with longer maturities.
We will not worry too much if the bonds are secured or unsecured. Secured bonds will have priority of claims compared to unsecured bonds. But since we think the bonds have low risk of default, this is not a big issue.
Sometimes we will choose bonds that are rated subordinated. This means they are rank below senior unsecured bonds.
By buying subordinated bond, the yield will be higher than that of senior unsecured bond. Hence achieving higher reward to risk ratio.
Above all, we stick to investment grade bonds. This means that rating agencies have classified the bonds as relatively safe.
We will do quarterly review on the earnings announcement of the bond issuers. This is to check if their fundamental remain healthy.
Ideally we prefer companies that have more cash than debt. This means that companies can afford to pay off all of its debt if they want to.
=> However such companies are rare.
=> Alibaba, Allianz, Biosensor (bond is called back), Coach, Genting are some examples.
If not, we find companies with healthy earnings, generates free cash flow and have manageable debt levels.
=> Such as eBay, Global Logistics Properties, Discovery Communications, Prudential PLC etc.
We also like bond issuers that have powerful shareholders. So if the company is in need of help, the powerful shareholders will come to rescue.
=> Such as China Cinda, Huarong Finance, Qingdao City Construction Investment etc.
Then we look through their list of bonds and choose ones that we think are worth buying.
Ideally we prefer shorter maturity and pays decent yield. But most of the time, decent yield comes with longer maturities.
We will not worry too much if the bonds are secured or unsecured. Secured bonds will have priority of claims compared to unsecured bonds. But since we think the bonds have low risk of default, this is not a big issue.
Sometimes we will choose bonds that are rated subordinated. This means they are rank below senior unsecured bonds.
By buying subordinated bond, the yield will be higher than that of senior unsecured bond. Hence achieving higher reward to risk ratio.
Above all, we stick to investment grade bonds. This means that rating agencies have classified the bonds as relatively safe.
We will do quarterly review on the earnings announcement of the bond issuers. This is to check if their fundamental remain healthy.
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