Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
High Yield Funds.....Tidbits related to quality transistions
- Another writer on his way to lunch - or maybe the golf course? You'd think he might mention the name of the fund he's leading off with - or too much trouble? The fund is probably VWEHX - Vanguard High Yield Corporate Fund. Has a reputation as one of the better and more conservative players in the HY market. Hedges downside somewhat with higher grade stuff - but it won't blow your socks off in hot markets.
- Here's a pretty good chart showing how the major rating agencies score bonds of varying quality. If buying a bond fund you need the prospectus in one hand and this chart in the other. Than have the latest annual or semi-annual report on the table in front of you showing their latest holdings. That way you'll have some idea what you're buying. (In school, my folks were happy if they saw 3 Bs on my report card. However, in bond-land, BBB- likely signifies "borderline" between junk & medium investment grade.) - http://www.bondsonline.com/Bond_Ratings_Definitions.php
- It's not surprising many funds are curbing their appetite for lower tier junk - or even higher quality stuff. T Rowe Price closed PRHYX, another conservative fund, to new investors many months ago. Go read the annual & semi-annual reports from managers of OAKBX - pretty cagey investors IMHO. Think you'll find they have no use for this stuff at current valuations
- The end cost to current buyers may turn out over time to be not so much lost $$ as lost opportunity. If the economy continues to improve, stocks (and most commodities) will far out-distance these things. You'd still be able to shift from junk into equities - but would miss a major part of the equity rally. On the other hand, if we slip back into recession, junk from these lofty levels will tumble along with stocks and many asset classes - possibly even more. (Personally think the first scenario more likely over the next year or so.)
Comments
"Demand from funds and institutional buyers is far outstripping the net high-yield new supply, and that’s leading people to bid up the prices.”- Here's a pretty good chart showing how the major rating agencies score bonds of varying quality. If buying a bond fund you need the prospectus in one hand and this chart in the other. Than have the latest annual or semi-annual report on the table in front of you showing their latest holdings. That way you'll have some idea what you're buying. (In school, my folks were happy if they saw 3 Bs on my report card. However, in bond-land, BBB- likely signifies "borderline" between junk & medium investment grade.) - http://www.bondsonline.com/Bond_Ratings_Definitions.php
- It's not surprising many funds are curbing their appetite for lower tier junk - or even higher quality stuff. T Rowe Price closed PRHYX, another conservative fund, to new investors many months ago. Go read the annual & semi-annual reports from managers of OAKBX - pretty cagey investors IMHO. Think you'll find they have no use for this stuff at current valuations
- The end cost to current buyers may turn out over time to be not so much lost $$ as lost opportunity. If the economy continues to improve, stocks (and most commodities) will far out-distance these things. You'd still be able to shift from junk into equities - but would miss a major part of the equity rally. On the other hand, if we slip back into recession, junk from these lofty levels will tumble along with stocks and many asset classes - possibly even more. (Personally think the first scenario more likely over the next year or so.)