Thoughts about high yield bond ETFs?
Thoughts about high yield bond ETFs?
I'm considering these High Yield Bond ETFs with my mad money in my taxable account (I'm in the 15% tax bracket):
Peritus High Yield ETF HYLD
iShares iBoxx $ High Yield Corporate Bd HYG
SPDR Barclays High Yield Bond JNK
Market Vectors High-Yield Muni ETF HYD
What are your thoughts with regard to the risk-reward combination? Since this is my mad money, I'm tempted to go for the highest yield ...
Peritus High Yield ETF HYLD
iShares iBoxx $ High Yield Corporate Bd HYG
SPDR Barclays High Yield Bond JNK
Market Vectors High-Yield Muni ETF HYD
What are your thoughts with regard to the risk-reward combination? Since this is my mad money, I'm tempted to go for the highest yield ...
-
- Posts: 6393
- Joined: Fri May 13, 2011 6:27 pm
Re: Thoughts about high yield bond ETFs?
High yield more risk.Bad for taxable(except municipal) Try Bogleheads philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
If mad money use high risk stocks
John
http://www.bogleheads.org/wiki/Boglehea ... philosophy
If mad money use high risk stocks
John
-
- Posts: 5463
- Joined: Wed Dec 28, 2011 8:56 am
- Location: North Carolina
Re: Thoughts about high yield bond ETFs?
I have 8% of my AA in Vanguard's HY Corp fund. However, everything I read says this is a bad time to invest in corporate HY. The interest rates and spread have dropped a lot in the past year or two as the herd has rushed to buy this sector. I plan to hold mine as it has done much better than total stock market the past 10 years, but I would not invest more given current conditions. Sorry, but I am not familiar with the ETFs you listed. Best wishes.
Re: Thoughts about high yield bond ETFs?
Somebody has got to buy these things and since mad money is supposed to be lost or burned to ashes, I say "Go for it!"
What's your exit strategy? How much will you lose before you sell? You surely have a plan for that, right?
What's your exit strategy? How much will you lose before you sell? You surely have a plan for that, right?
Re: Thoughts about high yield bond ETFs?
For a mad money investment there surely must be opportunities more interesting and promising than high yield bonds. There might be an argument that justifies some allocation to high yield in a portfolio as Rick Ferri has advocated, but an investment like this with fun money would be like planning on blowing cash on a fancy dinner and then gorging at McDonalds.
-
- Posts: 49035
- Joined: Fri May 11, 2007 11:07 am
Re: Thoughts about high yield bond ETFs?
With an ETF on an illiquid asset class you have the risk of high bid-offer spreads.
Besides that, I concur that it is not the time to be investing in HY. If one were, the VG fund (which I believe is closed to new investors) would be a relatively safe and conservative vehicle at low cost.
One could proxy HY investing now by investing in Small Cap Value stocks. One could also investigate CLosed End Funds that invest in CLOs and/ or distressed debt. There might be a few around-- it is an area High Net Worth Individuals are looking into.
Besides that, I concur that it is not the time to be investing in HY. If one were, the VG fund (which I believe is closed to new investors) would be a relatively safe and conservative vehicle at low cost.
One could proxy HY investing now by investing in Small Cap Value stocks. One could also investigate CLosed End Funds that invest in CLOs and/ or distressed debt. There might be a few around-- it is an area High Net Worth Individuals are looking into.
-
- Posts: 878
- Joined: Thu Sep 13, 2012 7:01 pm
Re: Thoughts about high yield bond ETFs?
If you're looking for alternative entertainment with your "mad money", you might take a look at some of the Motif investment bundles. They've come up with an interesting concept involving the creation of small "bundles" of stocks that you might want to think about for your mad money/fun money, if you haven't already thought about it.
- sometimesinvestor
- Posts: 1271
- Joined: Wed May 13, 2009 6:54 am
Re: Thoughts about high yield bond ETFs?
I agree with value thinkers first sentence. A similar event to what could occur happened a few weeks ago when the muni bond etfs did badly above and beyond what happened in the rest of the muni market. A problem is that the individual bonds in the ETFs tend to be over priced and the pros know this . If you want to invest in high yield bonds and as suggested you will probably have little return more than the current yield I would suggest a consevative open end high yield fund. Vanguard has a good one as do Fidelity and T. Rowe Price..
- nisiprius
- Advisory Board
- Posts: 52216
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: Thoughts about high yield bond ETFs?
1) Can you articulate your reason for thinking that adding high-yield bonds, which are sorta-kinda in between investment-grade bonds and stocks, will do anything very different for you than just boosting your stock allocation a little? I just have never seen the point of the in-between asset classes, like risky bonds or supposedly-lower-volatility categories of stocks. Stocks are stocks. Bonds are bonds. Pick total market index funds and mix to taste.Callalily wrote:What are your thoughts with regard to the risk-reward combination? Since this is my mad money, I'm tempted to go for the highest yield ...
2) Read this thread and the linked article: Bad time to invest in HY. I'm not at all convinced one can identify good or bad "times," but the article was interesting and confirmed my impression that when it comes to speculative bonds "there bee dragons" and that there's a lot more to know about them than I care to learn. Did you know about the "covenant quality" issue, for example?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Thoughts about high yield bond ETFs?
I think it's about as bad a time to get in to HY as it is to get in to TBM, investment grade corporates, muni's, TSP G-Fund, etc.
All are "over-priced/under-yielding" relative to inflation, risk, historical averages etc.
So I have some of all of the above, all in a percentage (overall) lower than I probably should given my future plans.
5.75% junk bond funds sounds dreadful, but so does 0.75% 5-year Treasuries.
Given the huge number of recent articles warning about the dangers of over-valued High Yield the contrarian in me would be tempted to add a little to it (if I had to add to bonds). If the economy continues to exhibit reasonable improvement over the next 5 years you could easily capture that current yield in HY on a total return basis, but I doubt one would do the same in Treasuries. And even if you did its less than 1% gain per year.
All are "over-priced/under-yielding" relative to inflation, risk, historical averages etc.
So I have some of all of the above, all in a percentage (overall) lower than I probably should given my future plans.
5.75% junk bond funds sounds dreadful, but so does 0.75% 5-year Treasuries.
Given the huge number of recent articles warning about the dangers of over-valued High Yield the contrarian in me would be tempted to add a little to it (if I had to add to bonds). If the economy continues to exhibit reasonable improvement over the next 5 years you could easily capture that current yield in HY on a total return basis, but I doubt one would do the same in Treasuries. And even if you did its less than 1% gain per year.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.