For near-term boost, go with high-yield fixed income

With most signs pointing toward several more months of uninterrupted quantitative easing, it isn't too late to jump tactically into the high-yield bond market for a near-term portfolio boost.

High-yield bond funds, up more than 5.6% from the start of the year, are clearly the hottest area of fixed income, and the near-term outlook is for more upside.

The key is to remain flexible in approaching any new high-yield exposure in this market, keeping a close watch on the Federal Reserve's plans to reduce the $85 billion-a-month bond purchasing program.

“If you think tapering is off the table until sometime in 2014, and if you think that companies are going to continue to have strong financial results, which we are seeing with earnings, you have to expect a positive impact on high-yield bonds,” said Todd Rosenbluth, an analyst at S&P Capital IQ.

The Washington donnybrook over the federal budget and the debt ceiling has effectively pushed tapering out until March at the earliest.

In fact, the weak September employment report — combined with the negative impact of the 16-day partial government shutdown — already is sparking speculation that tapering could be delayed until the summer months or later.

“If we continue to get employment reports showing just 150,000 jobs created, that idea of tapering starting in four or five months might become another 12 months,” said Thomas Meyer, chief executive of Meyer Capital Group.

He and other financial advisers see the record-level quantitative easing, with no firm end in sight, as more rocket fuel for risk assets, including high-yield bonds.

Source:  Jeff Benjamin, Investment News

AdvisorShares Peritus High Yield (HYLD) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  It currently has a 7.8% yield (as of 24 October 2013).

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

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