Some great comments from some great commenters...I appreciate @BobC downside concern, but my thought here is to employ a "buy and hold strictly for income" strategy. Certainly HY can have default risk, but from an income (taking coupon payments for income), is it possible to own a HY fund through these downturns and still come out the other side of these downturns with a uninterrupted income stream? Consider this as an alternative to an annuity; a monthly stream of income from dividends without touching the initial investment.
I also wonder if pairing OSTIX with a few other great bond funds would be another approach. Having a list of great bond funds is always helpful when diversifying a portfolio.
We are all told that holding individual bonds to maturity returns principal plus the coupon (outside of a default or haircut risk I would assume). I can imagine a low turnover, well managed (from default risk) bond fund coming pretty close to that scenario. The bond fund value will take a hit in a downturn, but so would an individual bond holding if sold during that downturn. The idea here is, as @Junkster points out, 25 years later his old girlfriend still wants to take him out to dinner. O.K. that might be a bit rich for Junkster's dietary requirements, maybe at least oatmeal at a diner.
Thanks @davidmoran with your choice FAGIX. I first heard of this fund from @Catch22. Great choice.
@Art, BUFHX is another good option. Could someone explain why most Buffalo Funds have an ER of 1.01% (probably my only knock). Could someone tell them .99% looks a hell of a lot cheaper.
No one yet has mentioned AGDYX (M*****,Bronze) which seems to be the out performer to many of the other recommendations made so far. Any opinions on AGDYX? HYB has also outperformed other HY bond fund compared below over the last 10 years.
HY Bonds (mentioned in this thread) over the last 17 years:

That article is 10y old. I think we probably are close to violent agreement. I do not argue against diversification in principle, and have been reading about the Lazy portfolios forever, longer than my following Israelsen, which has been a long time also. Defa likewise. I also hold no particular brief for Waggoner, and even he does not push the point too strongly. The thread got diverted because someone introduced EM a la DL.
So my point was only that foreign has not added a lot good or value for anyone's US equities portfolio in a looong time, which is indisputable. (See Bogle.) Whether one should do it anyway is almost a separate question, and based on their beliefs. When DLEUX becomes available to my accounts, assuming it does, I will certainly throw some money at it. But DSEEX / CAPE / auto-rebalancing SP500 does fine for many, has plenty of foreign exposure built in, as does say FLPSX, and therefore adding more foreign is a personal choice, as you say involving risk tolerance. If I were interested in rulebook quant approaches I would do Vang total market or total world approaches, or one of the handy AO_ family, as I have posted about before (AOA, AOR,AOM, AOK).

Hi Hank,
In your post you emphasized the rather low interest rate currently offered by bonds. I agree that will slightly dampen the benefits of a major bond allocation in a portfolio. But that is a secondary, perhaps even a tertiary, consideration during a market meltdown.
The primary benefit of a mixed portfolio is simply not having such a heavy commitment to stocks. To illustrate, consider a 100% stock portfolio and a 50/50 portfolio as an alternate. If the market tanks by 40%, the stock portfolio absorbs the entire downturn of 40%. The mixed portfolio only loses 20% even if the bond yield is zero. Bond diversification does wonders in a market meltdown by the direct impact of dilution.
I hope you sleep well tonight and other nights. I do.
Best Wishes.

Please take a look at page 25 of this Article. I am not attacking Waggoner, but I prefer a quantitative approach which includes risk parameters. No worries.
Kevin

I must have missed something. What sequential? (What was the sequence?) How much developed foreign? Where more than his wee sliver? Quantify and specify the risk reduction you say is taking place with their addition. Or do you just mean some volatility reduction / smoothing? I found only the 7Twelve stuff of interest, not the other equivocal articles, which actually seemed to mildly make Waggoner's point. What have I missed?
Also, go to M* and put in TWEIX, OAKIX, and LV. Compare the three from 1994 (max) and then 15y-14-13-10-5-3-1y. Note that only the 01-02-03 start points (= Israelsen) show foreign outperformance. Maybe there are other mfunds or etfs that would make the case better? I somehow doubt it. I guess this too is superficial, though.

@MJG - John Bogle likes the Total Stock Market Index better as being broader. I'm not into indexing, so your S&P figures are fine with me. I guess my point is still valid that some investors will do better than that 32% loss (plus fees) and some worse during the next "average" bear market.
Here's where I have a problem: You said "I certainly concur with your observation that a diversified portfolio that includes a major set of bond holdings would greatly soften the blow of a negative equity marketplace. I followed that practice for many years."
No. That's not what I said. My observation was that your past practice (holding bonds as defense) is of less value today. Here's why. At the start of the last "Great Recession" in late 2007 the 10-Year U.S. Treasury yielded around 5%. http://money.cnn.com/2007/06/07/markets/bondcenter/bonds/index.htm?postversion=2007060717
Not only did that coupon provide an income stream during the worst of the stock market debacle, but the face value of those bonds rose during that period as rates declined, further softening the blow to investors like yourself.
Today that same bond yields less than 2.5%. That's a big difference in yield. And it doesn't bode well for investors during the next recession. I'm not the first to note it. Ed Studzinski pointed it out over a year ago in one of his commentaries and voiced similar concerns about the inability of bonds in this day and age to mitigate an investor's stock declines. But I digress ...
Good night and good luck.

The Perennial Obsession With Constantly Predicting Recessions
James Picerno @ The Capital Spectator from 6/5/2016
According to a variety of “experts,” the US has been on the cusp of a new contraction ever since the last recession ended more than seven years ago. Yet the US economy has continued to expand,Predicting otherwise, continually, is a staple among the usual suspects. The projections, however, are conspicuous only for being wrong, so far. In time, a new recession will strike. But forever seeing a new downturn around the next corner is a short cut to failure, whether you’re managing an investment portfolio or running a business. Unless, of course, you’re in the media business or selling books and newsletters that traffic in disaster scenarios.
As for rolling the dice by reading the headlines du jour, well, let’s just say that history hasn’t been kind to this approach, as the following examples from recent history remind:
Included :recession predictions during the past several years from Bill Gross to Larry Summers including this one that still has 15+ months for a possible outcome.
If [Donald Trump] were elected, I would expect a protracted recession to begin within 18 months.
Larry Summers, former Treasury Secretary, via The Washington Post, Jun. 5, 2016
https://www.capitalspectator.com/the-perennial-obsession-with-constantly-predicting-recessions/

Hi Hank,
Thank you for reading my contribution and for your comments.
I pulled the numbers I quoted from the Malkiel book that I referenced and added the 2007-2008 equity drawdown. On page 29 of the referenced work, Malkiel states that the returns are the S&P 500 records. I did not check that statement.
I certainly concur with your observation that a diversified portfolio that includes a major set of bond holdings would greatly soften the blow of a negative equity marketplace. I followed that practice for many years.
I would note that Buffett would disagree with the diversification that I practice. Recall that he recommended a 90/10 split in his favored portfolio with 90% committed to equity positions. That's not me, especially now.
Best Wishes and Good Luck

Thanks. Kinda weak articles and arguments, seemed to me, except the middle Israelsen one that starts in 01, bad case for US LC.
But sure for the 7Twelve. He is like Merriman and his Lazys.
Not sure how much deeper most need to go than this, though (Waggoner updated, from 2015):
... do international funds help your portfolio? In terms of return, it's hard to argue that they have, at least within most investors' experience. The past 25 years, large-cap U.S. funds have gained an average 691%, vs. 338% for international funds. U.S. funds have beaten international funds the past five, 10, 15, 20 and 25 years.
You could argue that European stocks are cheap, relative to U.S. stocks, which is quite true. But then again, they nearly always are, because they don't grow as rapidly. You could also argue that there are more foreign companies than there are U.S. companies, and that investing in them gives you broader market exposure. That's also true. Then again, companies in the S&P 500 get 46.2% of their earnings from overseas, and that's enough international exposure for anyone.
Why have U.S. investors rushed to international funds? In part because much of U.S. mutual fund purchases are controlled by financial advisers, and conventional wisdom is that a stock portfolio should have about 20% of its assets in international stocks. As of the end of November, about 25% of all garden-variety mutual funds were in international stocks, up from about 8.6% in 2000. Advisers have been doing their jobs.
Israelsen is one of those advisers, and his 01-15 data do look compelling. But who do you know (and who here?) who would want the same small amount in US LC as in REIT, cash, commodities, or NR?
Much less stick with it.
Not I.
And his is really an arg for very broad diversification, not for foreign, which is 17% of total (and note that that total = 93% of egg) and half of that foreign is EM.
(Trying to think what EM, NR, and commod vehicles there were in 2001.)

@MJG - You said, "In that historical timeframe, those 10 Bear markets declined an average of 32%"
You left me wondering which stock market(s) you are referring to. Is that the Total Stock Market Index (approximated by VTSMX), the Total World Stock Stock Index (approximated by VTWSX) or the S&P 500 Index (approximated by VFINX)? Perhaps it's an average of all three? Or, perhaps it refers to some other entirely different stock market index? Sorry if that's nit-picking, but not all bear markets follow the same pattern. Practically speaking, an individual's equity holdings might perform much better than that average 32% loss, or far worse - depending on the types of stocks held during the multiple year time-frame mentioned.
Another important consideration is that most investors' losses during past bear markets were to an extent mitigated as their bond holdings appreciated in value owing to falling interest rates which accompany most recessions. Coupon yields also contributed to the investor's total return. With the very low (actually extraordinarily low) yields on U.S. Treasuries today, that mitigating influence would be much less. Net-net, the "average" investor today would probably take a harder hit than he/she experienced during recent "average" past recessions. Of less significance, but worth noting, is that those "average" reported market losses exclude the additional hit from ongoing fund/investment fees, usually paid out of an investor's assets.
Your advice regarding keeping several years cash on hand is valid. I know other intelligent investors who do the same (though my approach varies somewhat). Thanks for sharing. Hope I haven't misrepresented your views or otherwise muddied the issue.

@davidrmoran,
I reread the Waggoner Article, and I think that one must dig a little deeper than he does.
Ferri's Take
Israelsen's Quantitative View (1970-2006)
Israelsen's Analysis 2001-2015

Forbes Article on the Israelsen Model
From the Israelsen data, I'm inclined to believe that it is beneficial to own foreign developed and EM equities.
Kevin

PONDX continues to amaze (though not a HY Bond fund).
Maybe @Junkster could chime here, but I also see WHIYX as a reasonable HY choice as well. M8 knock this fund for recent management changes. Another choice that performs similarly to WHIYX, but may not be open to new investors is PRHYX.
Own OSTIX...diverisfy into WHIYX on dips:

Hi Guys,
The upward pull of the equity marketplace is nearly irresistible. I say nearly irresistible because since 1953 the market has only experienced 10 recessions that occupied about 20% of a total period of over 550 months. In retrospect, it's a statistically healthy period of time that Burton Malkiel summarized in his "The Random Walk Guide to Investing" book.
In that historical timeframe, those 10 Bear markets declined an average of 32% and the decline lasted 10 months. The average 100% full recovery period absorbed another 21 months.
I interpreted these data to mean that I ought to keep a cash or near cash portfolio allocation that covers just under 3 years of possible needs. That safety factor surely decreased my portfolio return expectation, but that's the price for downside protection. It has served me well.
With that cushion, I don't worry much over daily or even monthly market action. Again from Malkiel, going back to 1926, the S&P 500 has delivered positive outcomes over 70%, over 90%, and over 97% of the time for periods of 1, 5, and 10 years, respectively. I like those odds.
Truth be told, I really don't worry about much of anything. What happens, happens well beyond my control.
I too agree that headlines often are misleading by design.
Best Wishes.

Count me among those who don't see the appeal with OSTVX. Compared with Wellington, OSTVX:
- tracks moderately closely (correlation coefficient r of 0.92, coefficient of determination R^2 of 85%)
- is a bit more volatile
- generally underperforms (except for a period of about a year - mid 2012 to mid 2013)
- much more expensive
See this Portfolio Visualizer analysis page for correlation, std deviation and lifetime performance comparisons, and this M* performance chart for relative performances
It's not as though I don't find funds like this interesting. I used to follow Greenspring GRSPX. (Another fund with a fixed income sleeve that is low quality, shorter duration.) At the end of the day, ISTM what matters is performance.
That's not to say that portfolio allocation doesn't matter, but there are solid multi-sector funds that one can use instead to increase one's exposure to that portion of the fixed income market. (Even, dare I say, OSTIX.)

Because of M*, and now Calinan joining Osterweis, I am going to use OSTVX as buy when down fund rather than a long term fund. Yeah, I shouldn't have been swayed my M*, but it was too late before I figured them out. Given OSTVX is only NTF @ Merrill, with a $5K minimum, I'm going to wait till it sucks. They all do at some point.

I just took my equity position down from 75% to 60%. The market's had a nice run here with the rally since the election. But much of that has been based on the belief that corporate and individual taxes are coming down significantly. I expect that Trump is going to run into some tough sledding as we go forward.

@TSP_Transfer,
Thanks for the tip on CCAPX, which is an interesting global allocation fund, but really not in the ALT space. The CCAPX manager, Ryan Caldwell, served as the assistant manager of WASAX when it was on top of the world (1/2007 - 6/2014), and during his tenure, this fund beat the heavy hitters like MALOX and SGIIX, and even the wannabes, like WGRNX.
Test trading for CCAPX indicates that it is not available at Scottrade and Wellstrade, but it is available in TDAmeritrade and Fidelity retirement accounts with no minimum + TF. At an actual 1.15% expense ratio, this fund has very reasonable expenses.
Kevin

CCAPX Manager had good run @ WASAX .In 14 months has attracted $375 mil.Transaction fee @ popular brokerages.On my watch list.As @00BY observes, monitor in evolving mkt conditions.
https://www.chironfunds.com
https://www.chironfunds.com/Data/Sites/3/media/docs/Chiron_FactSheet.pdfhttps
https://www.chironfunds.com/Data/Sites/3/media/docs/Chiron_Portfolio_Composition.pdf

Many expect the market to go higher. As DJIA reached new high last week, I rebalanced more back into bonds and cash, ~25% and 5%, respectively.
Any idea on how DoubleLine Total Return and Core bonds are doing?

DLTNX 3 months: down -1.44%
DLFNX 3 mos: -1.35%
For comparison: DODIX, 3 mos: -down 0.74%.
MWTRX 3 mos. -1.88%.

DFLEX happens to be up 0.66% over the last 3 months.

@VintageFreak,
I own a foothold in WHGIX, but a 15% position in the best fund in that space, PRWCX.
Kevin