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FYI: Mark Hulbert, a fellow MarketWatch columnist and respected observer of the financial advising business, recently wrote a thoughtful critique of the massive rush to index-style investing.
High yield and junk bonds, active or not, do not fare well in down market as many investors sell at the same time. The risk is illustrated by Dan Fuss of Loomis Sayles Bond fund where the fund lost over 30% in 2008 due the lack of buyers of junk bonds and too many sellers. Each day the bond price kept falling as they are marked to market. In the meanwhile, the total bond index rose for several % that year.
For disclosure, I had a small holding, <1% in Loomis Sayles Bond in the beginning of 2008, and held on to it as it declined and recovered strongly in 2009. Lesson learned for sure.
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For disclosure, I had a small holding, <1% in Loomis Sayles Bond in the beginning of 2008, and held on to it as it declined and recovered strongly in 2009. Lesson learned for sure.