High yield funds

[Tiger]

What funds do you own for their high yields?

 

[audreyh1]

High yield funds are way overpriced right now. Better to go with a total return type fund.

Audrey

 

[Tiger]

High yield funds are way overpriced right now. Better to go with a total return type fund.

Audrey

I understand that but my question still stands.

 

[ERD50]

Vanguard Hi-Yield Corp fund. It is less 'junky' than most. Very few (one, two?) defaults in years.

That doesn't mean I shouldn't sell it - but I haven't.

-ERD50

 

[Moemg]

I also own Vanguard Hi-Yield Corp fund .

 

[brewer12345]

No high yield funds for me, but I do own individual securities that barf out a lot of cash. EGLE, DSX, STON, starting to buy AFN, although I am probably early. Sniffing over TMA, although I am not really interested until 24 or so.

 

[ESRBob]

I also like Vanguard's High Yield Corporate -- classy junk. No urgency to sell when things get tough like now, but then again, it has underperformed the junk index during good periods for junk. It's a compromise I like.

 

[unclemick]

I owned Vanguard Hi-Yield Corp up until Jan 2006 when I completed my grand new general investment theory of 'Chickenheartedness' and went Target Retirement(aka lifecycle) selecting 2015 cause the Norwegian widow could accept 2.8% current yield in a hard times mode.

Also dumped my 10% Vanguard REIT Index and have slowed down on saying Pssst - Wellesley a lot.

However - in the land of theoretical impureness(heh heh mad money) - bought single stocks - EGLE, STON mentioned by Brew a while back.

So the high yield dog isn't totally dead - just hiding under the porch.

I'm not sure what I would go for now if I needed yield. Canadian trusts

heh heh heh - everything looks rich to me.

 

[lifeisgood]

Do the individual stocks you guys mentioned pay dividends that qualify for the low 15% federal tax rate?

 

[haha]

What funds do you own for their high yields?

I own AFBIX, a fund which creates the inverse of a high yield index. The only way to fly right now.

Ha

 

[ERD50]

I own AFBIX, a fund which creates the inverse of a high yield index. The only way to fly right now.

Ha

Interesting. But I wonder what is a better (long term - years) defense: the inverse exposure to junk from AFBIX, or the 7% dividend that the (Vanguard) junk provides?

Seems whenever I get tempted to short something, that something just decides to meander, and all I do is pay expenses and miss other opportunities.

If I take action and sell my junk, I'll wish you luck with your AFBIX (but not until then!).

-ERD50

 

[haha]

Interesting. But I wonder what is a better (long term - years) defense: the inverse exposure to junk from AFBIX, or the 7% dividend that the (Vanguard) junk provides?

Seems whenever I get tempted to short something, that something just decides to meander, and all I do is pay expenses and miss other opportunities.

-ERD50

Long term it is rarely good to be short, and I would say it is never good to be short an index as a buy and hold plan.

These are not long term buy and hold strategies.

Ha

 

[ERD50]

These are not long term buy and hold strategies.

Ha

Makes sense. What sort of things influence your entry/exit points?

I've been holding my Vanguard Hi-Yield because I simply don't know what to do. I know the yield premium on junk is low, but it's still a premium, and if the fund does hold up over the longer term, why not just hold it?

I just can't come up with enough of a feeling on this to get me off the fence to take action and sell it. To buy what?

-ERD50

 

[haha]

I just can't come up with enough of a feeling on this to get me off the fence to take action and sell it. To buy what?

That is a very respectable point, especially if you have large capital gains. I don't use high yielod as a day in day out asset class. Overall, I am in when the spreads are very high, out when then revert to mean, and recently short.

As you rightly point out, the yield a short has to cover, if only implicitly, is a steep hurdle. A long period of not much happening is bad.

But at some point it seems to me that when you would never consider buying something, maybe it is a sell or even a short?

Ha

 

[Doubledoc]

I have a position in Eatan Vance Limited Duration Income (EVV). It's a close-ended fund that handles commercial mortgages and some corporate bond issues. THe price tends to be pretty stable and it yields over 8% consistently. There are other funds with higher (12%) yields but they have a lot more junk bonds or are very sector (e.g., energy) specific. EVV is somewhat diversified simply because the types of companies securing the loans is highly variable (energy, real estate, commodities, tech, health care...).

It's dropped in the past few months as interest rate discussions have evolved so it's probably a good time to buy.

EVV: Summary for EATON VANCE LTD DURA - Yahoo! Finance

 

[Doubledoc]

I forgot to mention - my position in EVV (my only high yield bond position) is only 1% of my portfolio, which is about 40% muni bonds and 5% TIPs. I haven't retired yet but plan to make it something more like 3% to increase my yield on retirement.

I don't believe these should be core holdings due to risk, but do think that having an extra $5-10K coming in as interest from such a fund to offset inflation is a good strategy. I wouldn't blink if it dropped by 50% (only a 1.5% drop in my overall holdings) but am planning to rely on the income.

Good luck.

 

[In-control]

I too own VG High Yield as part of my Bond Portfolio. I split my bond funds between VG High Yield, VG Total Bond and the VG Prime Money Market.

 

[FinanceGeek]

I have owned AWF (Alliance World Fund) for many years, it has done well, the 10 year annualized return is ~12% or so.

It tends to benefit only a little from the falling dollar as much of its holdings are dollar denominated.

 

[haha]

If I take action and sell my junk, I'll wish you luck with your AFBIX (but not until then!).

-ERD50

I hope you took action ERD 50. This junk market has nowhere to go but down. Almost every day AFBIX goes up. I don't think I ever had a mutual fund before that just marches upward.

I like the idea behind it, I like the psychology, and I think this trend can go on for quite some time.

Ha

 

[ERD50]

I hope you took action ERD 50. This junk market has nowhere to go but down.
Ha

No, I didn't sell. I just don't have much confidence in my own ability to market time junk rates vs investment grade rates vs xyz.

When I look at a longer time frame on VWEHX, I see it has spent only a very short time below $6.00 NAV, and roughly half it's life above $7.00. My average is about $6.30, a series of purchases around APRIL 2003, JAN 2004 and DEC 2004.

While one could certainly make money trading in/out over those peaks and valleys, it is not the game I'm looking for. I'd probably be wrong, lose money on the trade and miss the 7-plus % dividends.

I know the usual statement is 'junk isn't paying enough premium compared to investment grade'. I won't disagree, but in a way it is not Apples-to-Apples. So let me turn it around a bit and ask, where can I get a safer 7.6% yield?

Vanguard's next highest yield (outside of long term) is the inv grade interm term @ 5.6%. So, with the junk I am getting a 2% bump in yield, yes, taking extra risk, but how much really if I am willing to hold over the long term?

If you do have a good read on the NAV prospects of VWEHX, keep us informed. Maybe my response would be to buy more if you see a bottom in it?

-ERD50

 

[maddythebeagle]

Do the individual stocks you guys mentioned pay dividends that qualify for the low 15% federal tax rate?

I own TMA off of Brewer's list...and would also look to add at lower price...it is a financial REIT, so not qualified dividends...

 

[ats5g]

ERD50,

With junk you also have to keep in mind that you're going to lose some return due to defaults. For example, from 1984-2006, the return for Vanguard's HY fund [VWEHX], LT Corp [VWESX], and GNMA [VFIIX] can be broken down into Capital Return, Income Return, and Total Return:

VWEHX:

Capital: -1.48%
Income: 10.20%
Total: 8.72%

VWESX:

Capital: 1.24%
Income: 8.22%
Total: 9.44%

VFIIX:

Capital: 0.51%
Income: 7.81%
Total: 8.29%

So, even in an era of declining interest rates, where VWESX and VFIIX gained 1.24% and 0.51% respectively, VWEHX lost 1.48%. I'm certainly no bond expert here, but I suspect that VWEHX would've showed similar capital return if it was not for defaults. Hence my theory that VWEGX lost more than 1.48% due to defaults [probably around 2-2.5% given its intermediate term duration over that time period].

So, that 2% more in yield of VWEHX over VFICX doesn't seem all that comforting to me.

- Alec

 

[haha]

I know the usual statement is 'junk isn't paying enough premium compared to investment grade'. I won't disagree, but in a way it is not Apples-to-Apples. So let me turn it around a bit and ask, where can I get a safer 7.6% yield?

-ERD50

I don't know becaue I don't try to make those judgments. To me there is safe-treasuries- and then there is stuff with various degrees of speculative appeal and risk. I know that in a very short while I have a 4% gain on AFBIX and I expect much more.

Again to me and possibly only to me, junk is for trading not holding. The trades may be very long term term-5+ years- but conceptually I see them as trades.

Ha

 

[littledoc]

perhaps too junky for some, but i've been happy with fidelity capital and income for along time...up about 130% over the last 10years...still only represents <5% of aa

 

[Dawg52]

No high yield funds for me, but I do own individual securities that barf out a lot of cash. EGLE, DSX, STON, starting to buy AFN, although I am probably early. Sniffing over TMA, although I am not really interested until 24 or so.

Brewer, AFN now around $7.80. Good entry point?