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High Yield bond funds have a high correlation with stocks - so if stocks take a hit, then high yield bond funds might also. I wouldn't be putting new money into HYB funds at this point
High Yield bond funds have a high correlation with stocks
Does this mean stocks should be avoided at this juncture as well ?. High Yield bonds have a respectable long term record and they do not always align with stock performance. There is a place for junk in portfolios and I don't think you need to throw them all out.
Here is an older article about Ferri's take on High Yield
I tend to think that when junk bonds turn, it will signal the end is near for stocks. I'm not talking about a small correction (if or when that happens), but if we see junk bond funds going below their 10 month moving average, we will be in for a sell off in stocks.
Alternative views here, from BofA and TRP, summarized at Barron's blog.
The OP-linked article doesn't consider the HY spread, which is at least as important as yield considered in a vacuum; it's really compressed, but not approaching record territory yet. See the FRED graph here. The spread is almost a full percentage point above record lows, and it's been slightly widening lately.
In any case, Waggoner's piece doesn't say exactly what the headline says.
No need to get in a tizzy. Stay grounded, and let the price of things be your guide (not pundit hysteria, that is simply trying to get you to buy and sell and buy and sell).
@VintageFreak I see nothing wrong/imprudent with opening a small position in ARTFX. How often does one have an opportunity to invest with a Top-Tier manager (of any asset class), in the prime of his life, at the top of his game, in a new fund where he has a lot of latitude in deciding what he thinks needs to be done? The fact he is able to do this at such a classy fund family as Artisan is just icing on the cake. Also, Artisan allows one to initiate at practically nothing (actually, I think it may be zero, with an AIP) so very little capital needs to be put at risk, until better values appear. What's not to like?
I see nothing wrong/imprudent with opening a small position in ARTFX.
No joke. Once people realize who the manager is that Artisan lured away to launch ARTFX, the assets may pile up quickly, and Artisan closes funds at moderate AUM levels. I've been thinking about a foothold position too.
When I compared the decline and recovery of my high yield bond funds at Fido to my stock funds, Contrafund and Low priced Stock, from 2007-9, the declines were less and the recovery a year sooner. Perhaps this reflects Fido's bond expertise (supposedly good) or the size of the stock funds, but I also do think "that time it was different." OTOH, I'm not sure where one is supposed to go. My children's Roth IRA contributions from March remain in cash, waiting for the anticipated correction, and I hope they aren't checking the accounts. While I "know" timing in general fails, I think there will be a better entry point in the next 6 months, and the money will be in an index global stock fund. While I am more willing to let new Fido 403b $ sit in cash for now, I also put a toehold in ARTFX in my IRA at TDA. Just wish I could add more $ there. Depends on one's time horizon. At five years, I'm not selling high yield.
Good points, everyone. I may add an toehold in ARTFX too, I am only hesitating because of my desire not to have too many funds...
According to M*, ARTFX is 46% cash, (or was at the end of March) so if that's still true it's probably not a bad place to park some money and wait for a correction.
Comments
Does this mean stocks should be avoided at this juncture as well ?. High Yield bonds have a respectable long term record and they do not always align with stock performance. There is a place for junk in portfolios and I don't think you need to throw them all out.
Here is an older article about Ferri's take on High Yield
http://www.moneysense.ca/columns/high-yield-bonds-and-your-portfolio-part-2
Guido
The OP-linked article doesn't consider the HY spread, which is at least as important as yield considered in a vacuum; it's really compressed, but not approaching record territory yet. See the FRED graph here. The spread is almost a full percentage point above record lows, and it's been slightly widening lately.
In any case, Waggoner's piece doesn't say exactly what the headline says.
Caution? Yes. Run for the hills? No.
http://alephblog.com/2014/06/25/a-few-notes-on-bonds/
@VintageFreak I see nothing wrong/imprudent with opening a small position in ARTFX. How often does one have an opportunity to invest with a Top-Tier manager (of any asset class), in the prime of his life, at the top of his game, in a new fund where he has a lot of latitude in deciding what he thinks needs to be done? The fact he is able to do this at such a classy fund family as Artisan is just icing on the cake. Also, Artisan allows one to initiate at practically nothing (actually, I think it may be zero, with an AIP) so very little capital needs to be put at risk, until better values appear. What's not to like?
OTOH, I'm not sure where one is supposed to go. My children's Roth IRA contributions from March remain in cash, waiting for the anticipated correction, and I hope they aren't checking the accounts. While I "know" timing in general fails, I think there will be a better entry point in the next 6 months, and the money will be in an index global stock fund.
While I am more willing to let new Fido 403b $ sit in cash for now, I also put a toehold in ARTFX in my IRA at TDA. Just wish I could add more $ there.
Depends on one's time horizon. At five years, I'm not selling high yield.
According to M*, ARTFX is 46% cash, (or was at the end of March) so if that's still true it's probably not a bad place to park some money and wait for a correction.