Risk-seeking investors can find the profits in the equities market, but some are also buying high-yield bond related exchange traded funds (ETFs) to get high returns they crave.
Neuberger Berman LLC Managing Director Thomas P. O’Reilly sees that individual investors turned to high-yield bonds for “competitive returns with better downside protection” than equities, despite economic uncertainty, writes Douglas Appell for Investment News. Ann H. Benjamin, managing director with Neuberger Berman, says high-yield bonds tend to outperform equities during slow economic growth.
Some market watchers note, however, that a bearish economy will likely lead high yields to underperform investment-grade corporate bonds. (Read about how bonds fare vs. stocks).
Investors could buy individual bonds, but high-yield bond ETFs are an easy, low-cost alternative for diversifying an investment portfolio, remarks John Jagerson for Learning Markets. Potential investors should keep in mind that bonds may lose value when markets dip. Rising interest rates and inflation both affect bonds.
High-yield bonds are classified as below investment-grade, with higher risk of default or non-payment. Junk bonds usually pay 7% to 10% more than yields provided by 10-year Treasury notes.