Saturday, December 05, 2009

First-Rate Online Bond Analysis

BONDS HAVE ENJOYED A BIG SURGE IN interest from individual investors since the credit crisis. And they’ve been getting more attention from online brokers, too. The latest to add new fixed-income research capabilities is E*Trade, which just released a spiffed-up version of its Bond Resource Center

Among the new tools are a graphic representation of a bond search, added fixed-income portfolio analysis, and an updated bond ladder tool. E*Trade has attached these proprietary tools to its inventory of bonds, which is supplied by BondDesk, an electronic bond marketplace aimed at retail investors.

I found the Fixed Income Portfolio Report extremely useful and unusual in the online brokerage world. The tool lets you see all the bonds you hold in E*Trade accounts from several different perspectives, giving you an in-depth understanding of your fixed-income holdings. “Portfolio analysis is generally excellent for equities but not so good for fixed income,” says Liat Rorer, E*Trade’s vice president of investment products. “This tool is a step toward fixing that weakness.”

Any E*Trade account that you have that contains fixed-income securities, which include bonds, notes and CDs, shows up in the portfolio report account list. You can look at each account individually, or analyze all your E*Trade accounts as a group.

THE FIRST PAGE OF the report displays a summary of your fixed-income holdings. The next page contains pie charts with credit-rating summaries and types of bonds (corporate, municipal or Treasury) that you own. The next page details the maturity and duration of your holdings, in both graphic and tabular formats, so you get an idea of when your bonds are set to expire and what their sensitivity is to changes in interest rates. Your cash-flow summary—plus detailed data showing your income, month- by-month—helps monitor what your bonds are paying. The final page is a cash-flow analysis that’s broken out into taxable and tax-free income. The report wraps up with several pages of fixed-income definitions.

The sort of detail this E*Trade product offers would be very helpful to any investor trying to rebalance a fixed-income portfolio. At most online brokers, you virtually have to oversee your holdings by yourself, so we applaud this new tool.

Rorer says that E*Trade struggled with how to make the bond-search function more investor-friendly. The search tool itself wasn’t changed—you still have to pick out the types of bonds, the maturities and the range of yields you want. But once the results of the search come up, you can generate a graphic showing all the possible purchases by maturity on the X axis and by Yield to Worst, or the lowest potential yield possible on that bond, on the Y axis.

You can highlight an area on your graph and zoom in, which is helpful when your search generates several pages of bond listings. If you click on a single point of the graph, you get the details about that particular bond. The graph function helps you avoid outliers.

The bond ladder builder is designed to narrow the range of possibilities without making an absolute recommendation on what exact bonds to buy, according to Rorer. You select the type of bonds you want, the maturities you’re looking for, and the time frame of your overall ladder. (A bond ladder comprises fixed-income securities that mature sequentially at regular intervals so that the investor can get relatively steady returns with lower risk and more liquidity than other strategies.) For instance, you could build a ladder with AA+ corporates that starts with the first security maturing in two years, the last in 10 years and the rest maturing every two years over the interim period. The results are grouped by the date the bond matures.

Within each maturity group, the top five bonds are displayed by yield. As bonds are selected for your ladder, the coupons show up in a bar graph at the bottom. You can smooth out your income streams if you’re putting this together to generate monthly income.

If you click on “Preview order,” you get an order ticket. When you’re setting up a ladder, you have to accept the price that is displayed; you can purchase each bond individually if you want to negotiate price.

E*Trade extends agency pricing to its customers, so there is no markup on the price of the bonds. There is a $1 per bond commission with a maximum levy of $250; Treasury-bond purchases are free.

and added several features to its Stock Research Center. The goal of the redesign, according to Fidelity’s Franklin Gold, is to make the center an idea-generating tool that also allows investors to take action. It’s organized along four different themes: what stocks are moving, which ones you want to search for, which ones people are talking about and what experts think about them.

Most of these subjects are addressed by third-party research providers like Alacra and FirstRain. Fidelity has packaged its research results and made all of them easy to view on a single page.

In addition to showing the most actively traded stocks, you can now see the stocks that other Fidelity customers are trading most heavily. The top four buys and sells are on the main page; you can also look at the complete list by clicking through. The list is ranked by the total number of orders placed, not shares traded. A horizontal bar gives you an idea of the buy/sell ratio of various stocks among Fidelity customers.

Other tools summarize what’s being discussed by financial reporters and bloggers all over the Internet. For instance, Alacra Street Pulse captures comments on companies by sell-side, credit and industry analysts along with influential bloggers (including’s Tech Trader Daily writer, Eric J. Savitz), to let you see what key opinion leaders have to say about a particular company.

FirstRain searches for items of interest to investors, and through its semantic engine, categorizes and tags them. In the Fidelity Research Center, these items are categorized under the broad topics Energy, Consumer, Money Matters, Eye on the U.S. Economy, and Technology. You can then drill down into subcategories, which change daily, depending on what’s being discussed online.

Published in Barron’s, November 30, 2009. 

Posted by twcarey on 12/05 at 01:12 AM
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