This Solid 10% Yielding Junk Bond Fund Is The Right Portfolio
At The Wrong Time
Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
While there are multiple economic indicators suggesting that the landscape for junk bonds is changing and the risk/reward profile is getting worse, investors seem content that they’re worth bidding up as long as GDP growth looks good and the labor market remains tight. Plus, if the Fed is going to cut interest rates in 2024, even better! Still, investors can’t just throw their money at anything and expect to be rewarded. As credit conditions potentially get worse in 2024, being selective in the fixed income market might be as important as it’s been in a while.
The BlackRock Corporate High Yield Fund (HYT) could be a good opportunity for those seeking high income coupled with a well-researched selection process. Distribution yields of around 10% are common and the portfolio maintains a more modest duration, helping to mitigate some interest rate risk, but the credit quality profile and use of leverage might make your palms sweat a little. If it strikes the balance, and it’s done a relatively good job of that in the past, it might be an interesting high yield option.
Fund Background
HYT’s primary investment objective is to provide shareholders with current income with a secondary objective to provide capital appreciation. It seeks to achieve its objectives by investing, under normal market conditions, at least 80% of its assets in domestic and foreign high yield securities, including high yield bonds, corporate loans, convertible debt securities and preferred securities that are below investment grade quality. The fund also utilizes leverage in order to enhance yield and total return potential.
This is sort of a standard actively-managed high yield bond fund, but it has the research capabilities of BlackRock behind it. Historically, HYT has been an above-average performer within the high yield space, but volatility and risk will be big concerns. Any fund that dives deeper into lower-grade debt and layers leverage on top of it heading into a potentially challenging period for corporate fixed income could be a tough sell. Drawdowns in 2020 and 2022 were about twice that of JNK, which means investors should be prepared to ride this out over the longer-term in order to (hopefully) achieve solid long-term risk-adjusted returns.
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