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Re: High Yield Bond Fund Recommendation

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@norbertc wrote:

Hodey,

I've considered buying a HY fund many times and always decided against. My problem is that I don't see how HY as a buy & hold position complements my portfolio. 

Backtests to 1985 show that Wellesley has higher CAGR and lower volatility than either VWEHX or FAGIX. 

If it's yield I want, then a good Ivascyn CEF looks more appetizing.

I know that Bilperk trades VWEHX from time to time (at least I think he does). He pounces when credit spreads widen relative to IG debt; and sells when spreads come in. This makes good sense to me.

I could see owning HY if it smashed Wellesley or some other conservative investment, but it doesn't. It has neither better returns nor lower volatility. So, what's to be gained?

FWIW,

N.


Yes, it was at 8% for a very short period during the March lows.  I did not buy much though.  I thought is would tank further.  Then it was too late :o}

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Re: High Yield Bond Fund Recommendation

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@norbertc wrote:

Hodey,

I've considered buying a HY fund many times and always decided against. My problem is that I don't see how HY as a buy & hold position complements my portfolio. 

If it's yield I want, then a good Ivascyn CEF looks more appetizing.

FWIW,

N.


 

Really, @norbertc, "a good Ivascyn CEF looks more appetizing" in the current environment?

I used to invest in PCI, a good Ivascyn CEF, that made me good money until the recent bond massacre when the fund's peak-to-trough loss of 47.9% made me lose my appetite for it. I see that even capecod has taken, what I assume to be, a sabbatical from his voluminous CEF posting activity on the Fidelity Forum. Hope he is well, but there has been radio silence since April.

As a retired investor, I have pulled in my horns at this precarious time and forsaken high yield and/or leveraged funds until we find a better way to manage this pandemic by at least "flattening the curve".

I am afraid that the second half of this year may see significant economic and political dislocations such as numerous bankruptcies, high unemployment, continuing/escalating conflicts with China, and perhaps even a second wave of the corona virus pandemic.

I don't think this is a time to chase after yield/low quality credit instruments. But, if you must, I certainly wouldn't pick a CEF over a HY fund.

Good luck,

Fred

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Re: High Yield Bond Fund Recommendation

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@galeno wrote:

I understand. But WHY?

My first impulse would be to do the opposite. Swap high yield bonds for equity or equity / income.


That’s what I did a few months ago—sold FAGIX in my IRA and started increasing equity exposure. I was spooked by VYM’s bad crash and concluded that divvy payers would continue to suffer due to dividend cuts ... and FAGIX holds around 20% high dividend stocks.

I still own VWEAX but am not adding to it. Norbert’s observation about Wellesley is a trenchant one and I too can’t see what a big HY position does for me. 

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Re: High Yield Bond Fund Recommendation

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@norbertc wrote:

 

If it's yield I want, then a good Ivascyn CEF looks more appetizing.

I could see owning HY if it smashed Wellesley or some other conservative investment, but it doesn't. It has neither better returns nor lower volatility. So, what's to be gained?

FWIW,

N.


Recommending a leveraged CEF for income over a high yield bond fund... 

LOL. 

View solution in original post

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Re: High Yield Bond Fund Recommendation

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@chang wrote:

@galeno wrote:

I understand. But WHY?

My first impulse would be to do the opposite. Swap high yield bonds for equity or equity / income.


That’s what I did a few months ago—sold FAGIX in my IRA and started increasing equity exposure. I was spooked by VYM’s bad crash and concluded that divvy payers would continue to suffer due to dividend cuts ... and FAGIX holds around 20% high dividend stocks.

I still own VWEAX but am not adding to it. Norbert’s observation about Wellesley is a trenchant one and I too can’t see what a big HY position does for me. 


So VYM and FAGIX equity side is a concern due to its owning dividend payers but yet praising Wellesley which also owns dividend paying stocks... 

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Re: High Yield Bond Fund Recommendation

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@fred495 wrote:

@norbertc wrote:

Hodey,

I've considered buying a HY fund many times and always decided against. My problem is that I don't see how HY as a buy & hold position complements my portfolio. 

If it's yield I want, then a good Ivascyn CEF looks more appetizing.

FWIW,

N.


 

Really, @norbertc, "a good Ivascyn CEF looks more appetizing" in the current environment?

I used to invest in PCI, a good Ivascyn CEF, that made me good money until the recent bond massacre when the fund's peak-to-trough loss of 47.9% made me lose my appetite for it. I see that even capecod has taken, what I assume to be, a sabbatical from his voluminous CEF posting activity on the Fidelity Forum. Hope he is well, but there has been radio silence since April.

As a retired investor, I have pulled in my horns at this precarious time and forsaken high yield and/or leveraged funds until we find a better way to manage this pandemic by at least "flattening the curve".

I am afraid that the second half of this year may see significant economic and political dislocations such as numerous bankruptcies, high unemployment, continuing/escalating conflicts with China, and perhaps even a second wave of the corona virus pandemic.

I don't think this is a time to chase after yield/low quality credit instruments. But, if you must, I certainly wouldn't pick a CEF over a HY fund.

Good luck,

Fred


Fred,

I was out of PCI because of the high premium. But I bought (just) 1,000 shares on March 31st at a low price and a small discount.

The focus of my post was to question a buy&hold approach to HY. You did see that, yes? That would include PCI.

However, I did post that when attractive spreads appear, HY may offer value. That's it.  I decided to bite at the end of March on panic selling. The yield is now 11%.

N.

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Re: High Yield Bond Fund Recommendation

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Norbert,

Thanks for your usual thoughtful response(s).  I need to tell you that VWIAX is one of my largest portfolio holdings and I plan to add a bit more based on this discussion.  I'm also beefing up the bond portion of my asset allocation and replacing FAGIX which I bought in early April and it's returned a tidy profit.  Long-term, investing in high-yield bonds has been almost as viable as investing in stocks but involves less risk and delivers as you noted a slightly lower return.  The benefit is that I'm closer to my comfort-zone from a risk standpoint - reducing the odds that I'll feel compelled to go to cash the next time the economy comes under threat.  The problem with market-timing for me is that the market pays one to bear risk...if you aren't bearing risk, you just aren't getting paid.  Hence the search for a somewhat more consistent and conservative high yield fund.

Hope you're doing well.  I too miss Cape Cod and hope he's okay.  You'll recall he had a bad medical episode a couple of years ago and I hope it's not back.  We missed being able to take our June trip to Paris and Chamonix, Maybe next year.  Thanks again for your insight.

Ross

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Re: High Yield Bond Fund Recommendation

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We use PHYZX for HY portion of our retirement account. Haven't seen that fund mentioned yet.

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Re: High Yield Bond Fund Recommendation

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@YorkLion wrote:

We use PHYZX for HY portion of our retirement account. Haven't seen that fund mentioned yet.


Search PHYZX and you will find those.

YBB
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Re: High Yield Bond Fund Recommendation

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I was talking about in this thread. We've been very satisfied with it's yield and contribution to our overall retirement withdrawal. 

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Re: High Yield Bond Fund Recommendation

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High Yield funds tend to be correlated with small value equities.  Small value equities are highly correlated with the economy, particularly in a pandemic which is seeing many smaller companies in trouble.  The outlook for SV is not great right now.  While the spreads are not horrible, total return prospects for HY don't really seem worth the risk at 4-5%, when a fund can lose 25-35% of its value pretty quickly.  If you can buy a HY fund at 8% or so then you know that the price is already down and you will either get even higher yield, if price continues to decline, or higher price if yield continues to decline, at which point I would sell.

I would not buy a high yield fund today.

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