Anyone tried junk bond funds?

[ExpatJ]

I'm looking at Barclays junk bond fund (JNK) and HYG from Blackrock I believe. Both have 5-6% annual dividends. . Has anyone invested in these or similar? Seem like like very nice returns and worth allocating some cash too?.. (?)

[DPGumbypgh]

Have owned both for quite a while. Dividends used to be about 10% a year. I am probably going to sell them soon as the funds will go down in price once USA stops the quantitative easing and raises interest rates.

[fletchsmile]

I currently hold:

ETF: iShares Braclays/ BlackRock's USD Asia High Yield Bond Fund. I have the SGD version traded on SGX as it was convenient for me to buy from there. Has met it's objectives for me: reasonably stable capital (up a few %), quarterly dividend. Yield has dropped a bit now but around 5.8%

http://www.bloomberg.com/quote/AHYGS:SP

Unit Trust: Royal London Sterling Extra Yield Bond Fund. Although not specifically a junk bond fund, it does have a large weighting to sub-investment grade/junk and non-rated. I like its flexible mandate, active quality management and the fact they'll make the calls on which tenors, grades/junk or not, so will switch around when they think timing is right, which will be important when yields rise, curves flatten, spreads widen etc etc. Approx 7% yield

Unit Trust: Jupiter Strategic Bond Fund. Again not specifically a junk bond fund, but does have a large sub-investment/junk holding, but also 20%+ in AAA for balance. I like the quality active management and flexible mandate so they will switch to whichever bond sectors they think offer the appropriate return value. Yields 4.3%

The ETF needs more of an eye keeping on it as it tracks an index, therefore I have to assess whether I want exposure to it.

On the other hands for the 2 unit trusts I'm happy sitting back and leaving them to it, and they're held in UK ISAs. I've also held these as part of my mum's portfolio for her as a pensioner for the last 6 years too, and been happy with positive total returns each year to generate income, well above cash for a bit extra risk to capital.

Cheers

Fletch

Edited February 26, 2015 by fletchsmile

[paddyjenkins]

I'm looking at Barclays junk bond fund (JNK) and HYG from Blackrock I believe. Both have 5-6% annual dividends. . Has anyone invested in these or similar? Seem like like very nice returns and worth allocating some cash too?.. (?)

It truly is junk that these funds hold, and at a yield of less than 6% I'm not convinced the risk and rewards are fairly aligned. Thats especially the case because they are now widely held....by everyone and his dog etc...which means a lot of panicking to be done in a correction. And if you are subject to 30% withholding tax then definitely not a good buy.

Ive bought them before but only after a pull back, the strategy being capital gains as opposed to dividends. And for now id again wait for a pull back, or selectively buy individual bonds, as opposed to the fund.

If you are subject to the 30% withholding tax, but not capital gains tax, there is a way to cut that to 15% ish (sometimes much better, depends on conditions) by buying the futures, if you have access to them. These have the advantage of no dividend and so no US withholding tax, but wider bid offer spreads, which means the effective yield, which is the discount of the future price versus stock, being somewhat eroded, the real effective yield being typically more like 85% of that of the actual stock. But thats better than the 70% you end up with if US dividend tax withheld. Another drawback to the futures is lack of liquidity, which means buying millions of dollars worth will be hard, but smaller amounts doable.

[gk10002000]

I personally use PRHYX. Had it for years. I use Etrade and it is a NTF fund, no transaction fee. So purchases are free.

[gk10002000]

In my Brokerage account (not my IRA accounts) I am about to buy NEA which is a leveraged lower quality Municipal Bond fund. It is tax and AMT free. It should complement my PRTAX and PZA better quality Municipal Bond funds

[siam2007]

still suffering from junk STOCKS of dodgy Canadian explorers :-/

[ExpatJ]

Thanks all. I will put some money into JNK.

Related. I spoke to my Indonesia relationship manager today and she was suggesting Indonesian government bonds - @7% dividend per year and for the capital value to go up. . But you can get around 9-10% in a time deposit normal saving account in Jakarta now, so can't see the added value those bonds... Or is my advisor just trying to get the commission /spread?