Tighter monetary policy in advanced economies. Stretched asset valuations. These are anxious times for income-oriented investors. But don’t worry—it’s still possible to generate income without taking on unnecessary risk.
High-yield bonds have had a good run. But with interest rates rising, has the market run out of road? Don’t bet on it. The sector usually motors ahead when rates rise. And when it does decline, it rebounds rapidly.
Bonds in the US high-yield market are as varied as the creatures in the sea. Invest carelessly, and you may get stung. But with careful analysis, investors can uncover gems at any stage of the credit cycle.
Should tighter monetary policy on both sides of the Atlantic worry bond investors? We don’t think so. Bonds have historically delivered positive returns when interest rates rise—particularly when they rise gradually.
Looking for a way to increase your US exposure without adding equities? Need more income but worried about rising rates? US high-yield bonds deserve a place in your portfolio.
Not long ago, we suggested that investors who wanted to make their equity portfolios less volatile add a dash of high-yield bonds. There’s a similar low-volatility strategy available to high-yield investors: shorten duration and focus on quality.
There’s value and opportunity in European high-yield bonds today. But if you’re considering using an exchange-traded fund (ETF) to tap into the market, you may want to think again.
These are uncertain times in markets, and that creates a dilemma for investors who need high levels of income but can’t stomach a high level of risk. We have a solution. Actually, we have two.
The US credit cycle is entering its ninth year. That doesn’t mean it will end tomorrow. But it will end—and possibly sooner than markets think. Fortunately, there are ways to de-risk and maintain exposure to high-income assets.