Junk bonds - The Rodney Dangerfield market

Junkster

Junk bonds don't seem to get a lot of respect on this forum. At least I have seen few over the years recommending them as an integral part of one's portfolio. But they just keep trucking along as the proxy for this market, the Merrill Lynch High Yield Master II Index (a total return index) has hit all time historical highs the past two trading sessions. Many of the open end junk funds on a total return basis (dividends included) have also hit all time highs this week.

I have always had a thing for junk bonds because of their persistency of trend combined with their low volatility. Over the past two decades I have traded stock index futures, equity mutual funds, as well as individual equities, yet more than 50% of my total profits over that time have come from the junk bond market. That is primarily because the trend persistency/low volatility combo enables one to trade/invest more aggressively size wise than in its more volatile counterparts.

hank

Thanks for the reality check. For over a decade PRHYX was a staple for me and delivered much more than expected. In late 2012 I became concerned about valuations and moved the HY into a floating rate fund (PRFRX). Price's decision to close the fund to new investors heightened my concerns. Hmmm ... so far this year I'd have done much better staying in the junk fund (but the year's not over yet:-). Now I read - linked somewhere on the board - there are serious concerns about valuations for the floating-rate variety. To be sure, many don't understand that class and are probably using floaters as a proxy for cash - which they most definitely were not designed to be. For age-related reasons, the move from HY to floating was also designed to curtail risk. That's an additional dynamic confronting many of us which no amount of "planning" can fully reverse. Regards

PS - For the "uninitiated" among us, I'd point out that high yield suffered right along with equities in the 07-08 crash, with some high yield funds losing around half their value in very short order.