Your Favorite High-Yield Bond Funds?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
teelainen
Posts: 288
Joined: Fri Feb 01, 2019 1:17 am

Your Favorite High-Yield Bond Funds?

Post by teelainen »

What are some of your favorite high-yield bond funds?

I was talking to someone in their early 40's today and he told me that he recently met with his insurance agent. This person recently moved from a high cost of living area to a low cost of living area 3 months ago. He sold his home and bought (all cash) a much less expensive home in the lower cost of living area, so he has about $650,000 cash (in a non-tax deferred account) that is earning about 2.30% in two separate online savings accounts. He doesn't want to buy any more equities right now because he and his wife already have over $1 million in tax-deferred accounts with an AA of 80% stocks and 20% bonds. He also has stock options with his current company.

He told me that his insurance agent has given him sound financial advice over the past 15 years. His insurance agent told him to consider putting some of that $650,000 cash in some high-yield bond funds in order to beat the 2.30% that he is currently getting with his online savings accounts. His insurance agent said that he can afford to take a bit of risk and he agreed. He and his wife both have stable jobs.

His insurance agent recommended:
Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)
Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX)

He then asked me if I had any other recommendations for him. Are there any other high-yield bond funds that are better than these? Thanks.
badger42
Posts: 513
Joined: Thu Apr 09, 2015 9:01 am

Re: Your Favorite High-Yield Bond Funds?

Post by badger42 »

I've been quite happy with the Vanguard high-yield fund for my high-yield allocation.

It offers active management (which is good in the HY space - much less of an efficient market than, say, US large cap equities), reasonable ER (13bp for 50k or more, 23bp otherwise), and a strong track record.

Note that this fund is mostly a B/BB fund, less than 10% is below a B (so it's essentially the "high end of junk"), which IMO is the sweet spot, but your goals and biases may be different than mine.

Note that I only hold VWEAX in a tax-deferred account.
User avatar
midareff
Posts: 7400
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Your Favorite High-Yield Bond Funds?

Post by midareff »

It's one of thoise a little can't hurt you type of funds for me. I limit my participation to 8 - 10% or total portfolio. It is/was a fund liked by Rick Ferri and disliked by Larry Swedroe.
User avatar
vineviz
Posts: 9208
Joined: Tue May 15, 2018 1:55 pm

Re: Your Favorite High-Yield Bond Funds?

Post by vineviz »

teelainen wrote: Thu May 23, 2019 2:58 pm He then asked me if I had any other recommendations for him.
I'd recommend that he consider the idea that there are asset allocations between 80/20 and 0/100.

Investing in something like Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) would not only have better expected returns than junk bonds but could possibly be much more tax-efficient for your friend.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
MichCPA
Posts: 884
Joined: Fri Jul 06, 2018 9:06 pm

Re: Your Favorite High-Yield Bond Funds?

Post by MichCPA »

PHYZX, it beaten the Vanguard fund by $2,200 on the growth 10k over 10 yrs. Thats 105 bps/yr
fennewaldaj
Posts: 1070
Joined: Sun Oct 22, 2017 11:30 pm

Re: Your Favorite High-Yield Bond Funds?

Post by fennewaldaj »

I like HY bonds in general but given this is a taxable account I would suggest something like a 40% equity 60 % investment grade bond allocation instead. If he insist on HY either of the Vanguard funds is a good option. The high yield tax exempt fund is mostly investment grade so it might be a decent option.
Topic Author
teelainen
Posts: 288
Joined: Fri Feb 01, 2019 1:17 am

Re: Your Favorite High-Yield Bond Funds?

Post by teelainen »

midareff wrote: Thu May 23, 2019 3:18 pm It's one of thoise a little can't hurt you type of funds for me. I limit my participation to 8 - 10% or total portfolio. It is/was a fund liked by Rick Ferri and disliked by Larry Swedroe.
midareff, which fund are you referring to?
Topic Author
teelainen
Posts: 288
Joined: Fri Feb 01, 2019 1:17 am

Re: Your Favorite High-Yield Bond Funds?

Post by teelainen »

vineviz wrote: Thu May 23, 2019 3:24 pm I'd recommend that he consider the idea that there are asset allocations between 80/20 and 0/100.
vineviz, are you saying that his 80/20 asset allocation is too aggressive for his age? (early 40's)
User avatar
vineviz
Posts: 9208
Joined: Tue May 15, 2018 1:55 pm

Re: Your Favorite High-Yield Bond Funds?

Post by vineviz »

teelainen wrote: Thu May 23, 2019 4:22 pm
vineviz wrote: Thu May 23, 2019 3:24 pm I'd recommend that he consider the idea that there are asset allocations between 80/20 and 0/100.
vineviz, are you saying that his 80/20 asset allocation is too aggressive for his age? (early 40's)
No at all. To be honest, I think an 80/20 allocation is perfect for a typical 40 year old.

I also don't think $1million in retirement assets is too much for a 40-year old, so my uncensored advice would be to invest the $650k with the same allocation he's invested the $1 millon tax-deferred money. In fact, he could take advantage of asset location to optimize taxi efficiency: invest the tax-deferred accounts 67% in stock and 33% in bonds, and then keep the taxable account at 100% stocks.

My suggestion of VTMFX was predicated on the belief that investing the $650k in a 50/50 fund is a lot less dumb than investing in 100% in junk bonds or cash.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Trader Joe
Posts: 2173
Joined: Fri Apr 25, 2014 6:38 pm

Re: Your Favorite High-Yield Bond Funds?

Post by Trader Joe »

teelainen wrote: Thu May 23, 2019 2:58 pm What are some of your favorite high-yield bond funds?

I was talking to someone in their early 40's today and he told me that he recently met with his insurance agent. This person recently moved from a high cost of living area to a low cost of living area 3 months ago. He sold his home and bought (all cash) a much less expensive home in the lower cost of living area, so he has about $650,000 cash (in a non-tax deferred account) that is earning about 2.30% in two separate online savings accounts. He doesn't want to buy any more equities right now because he and his wife already have over $1 million in tax-deferred accounts with an AA of 80% stocks and 20% bonds. He also has stock options with his current company.

He told me that his insurance agent has given him sound financial advice over the past 15 years. His insurance agent told him to consider putting some of that $650,000 cash in some high-yield bond funds in order to beat the 2.30% that he is currently getting with his online savings accounts. His insurance agent said that he can afford to take a bit of risk and he agreed. He and his wife both have stable jobs.

His insurance agent recommended:
Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)
Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX)

He then asked me if I had any other recommendations for him. Are there any other high-yield bond funds that are better than these? Thanks.
Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)
Lee_WSP
Posts: 3998
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Your Favorite High-Yield Bond Funds?

Post by Lee_WSP »

VWEAX has a max drawdown since 2002 of a whopping 28%. It has about the same return as the vanguard balanced fund.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
JackoC
Posts: 2081
Joined: Sun Aug 12, 2018 11:14 am

Re: Your Favorite High-Yield Bond Funds?

Post by JackoC »

MichCPA wrote: Thu May 23, 2019 3:27 pm PHYZX, it beaten the Vanguard fund by $2,200 on the growth 10k over 10 yrs. Thats 105 bps/yr
It's had a good run, but it does have more risk so a straight up yield comparison isn't really fair. Comparing the ratio of return to risk it's still beaten VWEAX but not by as much*. Also one must I think consider the risk that the 0.55% ER of the Pimco fund is going to catch up with it in the future v 0.13% for VWEAX. 'You can't eat risk adjusted return', but OTOH if you just want higher expected return you can buy stocks.

*per Morningstar the 10 yr return and Sharpe Ratio of PHYZX was 9.41% pa and 1.51, VWEAX 8.48% and 1.44, Vanguard Total Stock Market 14.70% and 1.13. Note that VWEAX and some other better junk funds have tended to be superior to stocks in risk adjusted return, VTSMX also has the lowest Sharpe Ratio of those three funds in 15 yrs, contrary to the common belief on this forum that junk bonds are an automatic rip off of investors. The two main problems with junk are a) it takes away room for big stock allocations for people who want to take boatloads of risk as many people here seem to want to do and b) junk is tax inefficient if you don't have room for it in tax deferred accounts.
User avatar
midareff
Posts: 7400
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Your Favorite High-Yield Bond Funds?

Post by midareff »

teelainen wrote: Thu May 23, 2019 4:21 pm
midareff wrote: Thu May 23, 2019 3:18 pm It's one of those a little can't hurt you type of funds for me. I limit my participation to 8 - 10% or total portfolio. It is/was a fund liked by Rick Ferri and disliked by Larry Swedroe.
midareff, which fund are you referring to?
VWEAX, the Vanguard High Yield Bond Fund Admiral. 12 month return of 6.95%, three year return of 6.47%, five year of 4.58%, ten year of 8.48% and YTD of 8.82%. Now, it is more volatile than bond funds with higher credit worthiness holdings and when stocks tank it will join them and when stocks soar and economic times are great it will be going up (NAV) as well. Many think it does not contribute to a portfolio as it takes a % away from equities. Larry Swedroe is against holding this type of bond fund, Rick Ferri thinks it has a place. .. I believe he cited 8% - 10% but it's been awhile since I read that book. Like many others I don't consider a junk bond fund but rather think of it as fallen angels and hold a small % myself. YMMV.
Van
Posts: 809
Joined: Wed Oct 27, 2010 9:24 am

Re: Your Favorite High-Yield Bond Funds?

Post by Van »

Vanguard Prime Money Market Fund. :happy Everyone is a comedian.
tdmp
Posts: 90
Joined: Sat Mar 09, 2019 10:12 am

Re: Your Favorite High-Yield Bond Funds?

Post by tdmp »

High yield corporate: I kinda look at as a balance fund...Due to taxes, I would not hold it in taxable account. Instead of high yield corporate , I would do VTMFX. Both similar returns the last 10 years . Similar volatility. And since it is in taxable account, VTMFX will probably will have higher returns.... (10 year return has been similar before tax on distribution: VTMFX: 9.87% , VWEAX: 9.49%....10 year returns after tax on distribution: VTMFX: 9.67%, VWEAX: 6.81%... a whopping 286 basis points difference!)
dcop
Posts: 220
Joined: Fri Sep 08, 2017 6:06 pm

Re: Your Favorite High-Yield Bond Funds?

Post by dcop »

I really like and hold Vanguard Long-Term Investment-Grade Fund Admiral Shares (VWETX). I'm getting 4.26% on my original purchase and currently am at 8.1% total return since buying in June of 2018. I really don't care about the share price tho as I'm in the fund for it's distribution so I have no plan to sell currently.
ChinchillaWhiplash
Posts: 1021
Joined: Sat Jan 20, 2018 5:40 pm
Location: Land of Hypoxia

Re: Your Favorite High-Yield Bond Funds?

Post by ChinchillaWhiplash »

If above 24% fed tax rate, this might be worth a look: HYMB
sonosoldi3112
Posts: 111
Joined: Fri Sep 17, 2010 8:40 pm

Re: Your Favorite High-Yield Bond Funds?

Post by sonosoldi3112 »

PONAX beats them all .. .. even beats Wellington VWENX over different time spans ( run it through portfolio vizualizer) ... yes .. a bond fund that smokes the stock funds and it was only 5% or so down in 2008.

Over 25 billion in the fund and managed by Pimco... plus has proven history of success.
MichCPA
Posts: 884
Joined: Fri Jul 06, 2018 9:06 pm

Re: Your Favorite High-Yield Bond Funds?

Post by MichCPA »

JackoC wrote: Thu May 23, 2019 5:28 pm
MichCPA wrote: Thu May 23, 2019 3:27 pm PHYZX, it beaten the Vanguard fund by $2,200 on the growth 10k over 10 yrs. Thats 105 bps/yr
It's had a good run, but it does have more risk so a straight up yield comparison isn't really fair. Comparing the ratio of return to risk it's still beaten VWEAX but not by as much*. Also one must I think consider the risk that the 0.55% ER of the Pimco fund is going to catch up with it in the future v 0.13% for VWEAX. 'You can't eat risk adjusted return', but OTOH if you just want higher expected return you can buy stocks.

*per Morningstar the 10 yr return and Sharpe Ratio of PHYZX was 9.41% pa and 1.51, VWEAX 8.48% and 1.44, Vanguard Total Stock Market 14.70% and 1.13. Note that VWEAX and some other better junk funds have tended to be superior to stocks in risk adjusted return, VTSMX also has the lowest Sharpe Ratio of those three funds in 15 yrs, contrary to the common belief on this forum that junk bonds are an automatic rip off of investors. The two main problems with junk are a) it takes away room for big stock allocations for people who want to take boatloads of risk as many people here seem to want to do and b) junk is tax inefficient if you don't have room for it in tax deferred accounts.
Since the returns are already net of expenses (thus the sharpe ratios as well), I don't see any reason to make an additional discount for expenses. It has simply beaten the Vanguard fund on a risk (and fee) adjusted basis. Also, you are using the Admiral class which has a 50k minimum and comparing it to a fund that I can get for a $100 minimum at Schwab. A fairer comparison is VWEHX which has fees of .23 bps and a 3k minimum.
User avatar
jhfenton
Posts: 4708
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Your Favorite High-Yield Bond Funds?

Post by jhfenton »

The only high-yield bond funds I would be interested in are FALN/iShares Fallen Angels USD Bond ETF or ANGL/VanEck Vectors Fallen Angel High Yield Bond ETF. There is solid evidence that the investment grade cliff results in an exploitable anomaly, and both funds have significantly outperformed vanilla HY funds over their lifespans.

ANGL is older, larger (~$1B), and 35 bp. FALN undercuts ANGL at 25 bp and is a lot smaller (~$93 MM), but is growing slowly and steadily.

If you go back to the inception of FALN on 6/14/16, $10K has grown to $12,494.65 in FALN, $12,356.81 in ANGL, and $11,953.29 in VWEAX.

If you go back to the inception of ANGL on 4/11/12, $10K has grown to $17,346.02 in ANGL vs $14,960.94 in VWEAX.

And that outperformance has been in spite of higher average credit quality in the fallen angel funds.
User avatar
tennisplyr
Posts: 2813
Joined: Tue Jan 28, 2014 1:53 pm
Location: Sarasota, FL

Re: Your Favorite High-Yield Bond Funds?

Post by tennisplyr »

I've held Fidelity Strategic Income for a number of years. Here's some Kiplingers info.

https://www.kiplinger.com/tool/investin ... /index.php
Those who move forward with a happy spirit will find that things always work out.
User avatar
packer16
Posts: 1414
Joined: Sat Jan 04, 2014 2:28 pm

Re: Your Favorite High-Yield Bond Funds?

Post by packer16 »

I would look at TPG Specialty (TSLX) and Main Street (MAIN) BDCs as well as Brookfield Infrastructure Partners (BIP). These all have great underwriting teams, have higher yields & future growth (from growing income streams).

Packer
Buy cheap and something good might happen
JackoC
Posts: 2081
Joined: Sun Aug 12, 2018 11:14 am

Re: Your Favorite High-Yield Bond Funds?

Post by JackoC »

MichCPA wrote: Tue May 28, 2019 11:12 am
JackoC wrote: Thu May 23, 2019 5:28 pm
MichCPA wrote: Thu May 23, 2019 3:27 pm PHYZX, it beaten the Vanguard fund by $2,200 on the growth 10k over 10 yrs. Thats 105 bps/yr
It's had a good run, but it does have more risk so a straight up yield comparison isn't really fair. Comparing the ratio of return to risk it's still beaten VWEAX but not by as much*. Also one must I think consider the risk that the 0.55% ER of the Pimco fund is going to catch up with it in the future v 0.13% for VWEAX. 'You can't eat risk adjusted return', but OTOH if you just want higher expected return you can buy stocks.

*per Morningstar the 10 yr return and Sharpe Ratio of PHYZX was 9.41% pa and 1.51, VWEAX 8.48% and 1.44, Vanguard Total Stock Market 14.70% and 1.13. Note that VWEAX and some other better junk funds have tended to be superior to stocks in risk adjusted return, VTSMX also has the lowest Sharpe Ratio of those three funds in 15 yrs, contrary to the common belief on this forum that junk bonds are an automatic rip off of investors. The two main problems with junk are a) it takes away room for big stock allocations for people who want to take boatloads of risk as many people here seem to want to do and b) junk is tax inefficient if you don't have room for it in tax deferred accounts.
Since the returns are already net of expenses (thus the sharpe ratios as well), I don't see any reason to make an additional discount for expenses. It has simply beaten the Vanguard fund on a risk (and fee) adjusted basis. Also, you are using the Admiral class which has a 50k minimum and comparing it to a fund that I can get for a $100 minimum at Schwab. A fairer comparison is VWEHX which has fees of .23 bps and a 3k minimum.
I'm not saying the past performance needs to be adjusted for expense difference, I understand that it already is. I'm saying that going forward 0.55% and 0.13% are for sure (or approximately, or as long as the two fund companies maintain their respective high and low fee business models). The future performance otherwise is not for sure. IMO this weighs in favor of lower cost funds in general.

The Admiral/Investor share point is valid for investors on a scale where it would be worth doing anything for less than $50k, a reasonable point though not a universal one.
chw
Posts: 974
Joined: Thu May 24, 2012 4:22 pm

Re: Your Favorite High-Yield Bond Funds?

Post by chw »

Trader Joe wrote: Thu May 23, 2019 4:43 pm
teelainen wrote: Thu May 23, 2019 2:58 pm What are some of your favorite high-yield bond funds?

I was talking to someone in their early 40's today and he told me that he recently met with his insurance agent. This person recently moved from a high cost of living area to a low cost of living area 3 months ago. He sold his home and bought (all cash) a much less expensive home in the lower cost of living area, so he has about $650,000 cash (in a non-tax deferred account) that is earning about 2.30% in two separate online savings accounts. He doesn't want to buy any more equities right now because he and his wife already have over $1 million in tax-deferred accounts with an AA of 80% stocks and 20% bonds. He also has stock options with his current company.

He told me that his insurance agent has given him sound financial advice over the past 15 years. His insurance agent told him to consider putting some of that $650,000 cash in some high-yield bond funds in order to beat the 2.30% that he is currently getting with his online savings accounts. His insurance agent said that he can afford to take a bit of risk and he agreed. He and his wife both have stable jobs.

His insurance agent recommended:
Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)
Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX)

He then asked me if I had any other recommendations for him. Are there any other high-yield bond funds that are better than these? Thanks.
Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)
+1. I allocate 20% of my bonds to this fund, and have been very happy with it. Rick Ferri had linked a video interview he had done supporting his rationale for investments in this fund. One takeaway I recall is that while it is a HY fund, the holdings tend to be on the "better" end of the bonds held by HY funds- i.e.- better rated.
Post Reply