Question About High-Yield Bond Funds

[stevemac]

While doing some weekend research I came across a high-yield bond fund ABHIX. I have no deep familiarity with bond funds other than having BND in my portfolio. What led me to write is the coupon rate of the various bonds in the fund, combined with the relatively low risk of ABHIX (which I'm merely using for discussion purposes).

Those coupon rates range well above 4% to quite a few around 3%, and seem like a pretty decent recent at this point. So I'm curious why I don't see more discussions about such funds (I did a search for ABHIX and came up empty). It seems like a decent monthly/quarterly income vehicle. And if if this type of fund is good for allocations, I'd love to hear about Vanguard, Schwab or TDA variants.

Thanks for all opinions.

 

[OldShooter]

While doing some weekend research I came across a high-yield bond fund ABHIX. I have no deep familiarity with bond funds other than having BND in my portfolio. What led me to write is the coupon rate of the various bonds in the fund, combined with the relatively low risk of ABHIX (which I'm merely using for discussion purposes).

Those coupon rates range well above 4% to quite a few around 3%, and seem like a pretty decent recent at this point. So I'm curious why I don't see more discussions about such funds (I did a search for ABHIX and came up empty). It seems like a decent monthly/quarterly income vehicle. And if if this type of fund is good for allocations, I'd love to hear about Vanguard, Schwab or TDA variants.

Thanks for all opinions.

"High Yield" are aka "Junk" bond funds. There is a reason for this.

 

[audreyh1]

High yield bond funds are very volatile and often track stocks when the economy goes south. High yield bonds are also known as junk bonds. The yields are high because the credit quality is poor, thus making them riskier to own than higher rated bonds.

 

[njhowie]

While doing some weekend research I came across a high-yield bond fund ABHIX. I have no deep familiarity with bond funds other than having BND in my portfolio. What led me to write is the coupon rate of the various bonds in the fund, combined with the relatively low risk of ABHIX (which I'm merely using for discussion purposes).

Those coupon rates range well above 4% to quite a few around 3%, and seem like a pretty decent recent at this point. So I'm curious why I don't see more discussions about such funds (I did a search for ABHIX and came up empty). It seems like a decent monthly/quarterly income vehicle. And if if this type of fund is good for allocations, I'd love to hear about Vanguard, Schwab or TDA variants.

Thanks for all opinions.

What is more important than the coupon rate of bonds in the fund, is at what price did they acquire those high yield bonds at and what are they valued at today? In other words, what is their effective yield? Additionally, what is the fund yielding today? What happens if interest rates inch higher, even a modest amount? You may find the value of your holdings going down much more than the interest you're collecting.

Many, many folks (supposedly in the know) indicating that now is not the time to be going in to bonds and bond funds. When you're at zero, how much lower can you really go? The Fed has already indicated they are not entertaining going negative. So, do you take the Fed at its word, or wager against them, that they will in fact go negative?

Personally, I like bonds over bond funds in that my yield and holding period is immediately defined the day I purchase. My bonds are held to maturity, unless they get bid so far above fair value that it makes no sense not to sell for capital gains.

If you do opt for the bond fund, I would opt for one that has an average maturity of no more than maybe 5 years at most. In the event that rates do go higher, you 'll want one that can adjust to the higher rates more quickly. Short and ultra short term bond funds are best in this scenario, but to get respectable yield you'll likely need to go further out a bit on the maturity curve.

 

[braumeister]

A quick look at M* shows ABHIX has underperformed its index for the last ten years in a row, and underperformed other funds in its category for eight of the last nine years. So there are obviously some issues, not even mentioning its 0.79% ER.

People have been chasing yield for years, and every year it gets harder. My feeling is that it's not worth it. Set up and forget a good diversified portfolio and don't pay a lot of attention to it.

 

[Winemaker]

I have owned HYG for since the Great Recession when it was at rock bottom. It is part of my fixed income portfolio; I put about $10,000 in and reinvest the interest divvies. Its worth about $18,000, as it has taken a COVID hit recently. I'm not getting rich from it, but provides another income stream from another leg in portfolio stool.

 

[stevemac]

This has been exceptionally helpful, and thanks to everyone who took time to respond. This clarifies several issues, and I just want to add that what initially caught my eye about the fund I stumbled onto (ABHIX again) were two things: (1) Many of the companies in the fund might not normally be seen as "junk", and (2) quite a number of the bonds mature within 5 years with high initial coupon rates. That could prove enticing to others like me or though reasonably familiar and comfortable with investing, are not as familiar with the bond side. So thanks also for helping others beside myself.

 

[lordjust]

While doing some weekend research I came across a high-yield bond fund ABHIX. I have no deep familiarity with bond funds other than having BND in my portfolio. What led me to write is the coupon rate of the various bonds in the fund, combined with the relatively low risk of ABHIX (which I'm merely using for discussion purposes).

Those coupon rates range well above 4% to quite a few around 3%, and seem like a pretty decent recent at this point. So I'm curious why I don't see more discussions about such funds (I did a search for ABHIX and came up empty). It seems like a decent monthly/quarterly income vehicle. And if if this type of fund is good for allocations, I'd love to hear about Vanguard, Schwab or TDA variants.

Thanks for all opinions.

I own Fagix and i regret owning it. The yield has been nice but it’s still down significantly since I made the purchase. I would advise against the junk bond funds.

 

[Mr._Graybeard]

PIMIX/PONAX has gained a lot of adherents in recent years, Ironically (or perhaps not) as its performance has fallen off vs. the Barclays Aggregate Bond Index. PIMCO has also seen fit to jack up its annual expense ratio a bit.

That said, I consider it a reasonable replacement for equity exposure in the current market. Its primary investments are in interest rate swaps, not bonds. It definitely does not follow the rest of the bond market -- instead, when the S&P sheds 2%, PIMIX is off 0.2%, and vice-versa.

Real-world yield vs. NAV is currently about 6%. NAV has lost about 4% during the COVID correction.

 

[mckittri2000]

I own PRHYX through T. Rowe Price and I can tell you it's volatile. It has averaged a 5% annual return over the last 10 years but the ride is like a roller coaster. It is closed to new investors now.

 

[ESRwannabe]

While doing some weekend research I came across a high-yield bond fund ABHIX. I have no deep familiarity with bond funds other than having BND in my portfolio. What led me to write is the coupon rate of the various bonds in the fund, combined with the relatively low risk of ABHIX (which I'm merely using for discussion purposes).

Those coupon rates range well above 4% to quite a few around 3%, and seem like a pretty decent recent at this point. So I'm curious why I don't see more discussions about such funds (I did a search for ABHIX and came up empty). It seems like a decent monthly/quarterly income vehicle. And if if this type of fund is good for allocations, I'd love to hear about Vanguard, Schwab or TDA variants.

Thanks for all opinions.

Bonds are not the safe investments they used to be. You can't buy them for a descent yield anymore. IMHO they are now for trading and trying to front run the central banks.

So, I'd stick with the experts like DoubleLine and Pimco. For high yield I like the DoubleLine closed end fund DSL when it is selling at a discount. Also in CEFs, PIMCO has a bunch of good ones if you can ever buy them at a discount (which is very rare).

 

[gwraigty]

I use USHY and FALN.

 

[Cobra9777]

Our fixed income allocation is only 27%. Most of that is AGG, with some BNDX mixed in. AGG is ~75/25 treasury/corporate. I believe BNDX is similar, though non-US sovereign obviously. Many years ago, I wanted this to be more like 50/50 treasury/corporate. So it also includes LQD (investment grade corp) and, to a lesser extent, HYG (high-yield corp). Over the years, the yield and total return have been better than AGG alone, which was the original reason for tilting to corporate. But yes, it's a bit more volatile and stock-like, overall. Many people hold bonds for the stabilizing effect relative to stocks.

We have two pensions, some rental income, and SS still to come. Very little reliance on portfolio withdrawals currently and probably none when SS starts. So a reasonable argument could be made that we should be 100% equity. I'm letting things drift that direction naturally and I may intervene to speed things up at some point. But in the meantime, it suits me fine that the small fixed income allocation has a moderate tilt to corporate, including high-yield.

 

[COcheesehead]

High yield fits into the third bucket or a long term investment where you can take advantage of the volatility.
If you look at some of the 5 star allocation funds, they devote some of their fixed income allocation to high yield. Puritan, which is a core holding for me, has almost 15% devoted to it.
High yield also currently sits under the protection of the Fed umbrella. They are buying it.

I can't comment on the OP's fund, but high yield is a valid category for investment not only for diversification, but also for above average income...if held long term.