I.S.K CAPITAL

Here is my little rant about absolutist bond guys. First, investment is quite personal and has to be tailored to your risk or investment goals. And I do believe bonds have a place in your portfolio. Problem arguing with them is they think bonds are the best thing ever since sliced bread. Unless you already make a lot of money, bonds will not create that generational wealth. When analyzing bonds, they tend to perform better in the short to medium term horizons. But will always lag equities in the long term. Bonds in most EAC countries (let’s focus on KE, UG, RW & TZ) have coupon rates of 9.5% in TZ to 16.6% UG in short to medium terms. A lump sum today would give much much higher absolute returns vs any equities or real estate deals out there. But you forget you are living in economies growing their GDPs from ~4.7% in KE to 7.4% in Rwanda per year. Crazy growth, right? Equities (blue chips in KE, TZ & UG) thrive in this scenario as they have consistently shown growth & PAT in double digits year over year. While inflation rate is better controlled in KE & TZ, we see it growing in UG & RW. Uncontrolled inflation is not good for you as an investor, especially for bond investors where your return is capped. It erodes your purchasing power over time. Two examples I’ll give (I have more but let’s stick to these). In KE, I started buying COOP at 10.5 all the way to 13/share. Ended up at KES 11.6/share. Back then, COOP distributed 1/share for divided and gross dividend was ~8.6%. Medium term bonds were giving 13-14% while long term were at 16-17% (today coupon rates are much lower). In the beginning, a bond investors had better absolute returns. But now I’m earning over 20% dividend return while sitting on 200%+ in cap gains. Same story in Uganda, when we bought SBU in the 21-25 range. Started out with 8-9% dividend returns but now we are at 30% gross dividend returns plus cap gains of over 300%. How are bond holders going to catch up with those equity holders? That’s why I’ve always said as long as you pick sound blue chip equities to hold, in the long term you’ll be fine. Younger people have time to allow for this compounding. You cannot be risk averse at a young age and expect to make generational wealth. How many people do you know made generational wealth holding bonds? The likes B. Patel, J Kabunga, S Ruparelia, J Mwangi, huyo mzee wa Centum & etc got wealth holding equities. Like I will always say, bonds will always have a place on portfolios but allocation is the key. I still stand by my stance that younger investors need to allocate more to equities vs bonds.