RidgeWorth's publication, "In Search of Yield: The Case for Actively Managed High Yield Bond Funds," suggests investors may benefit from an actively managed portfolio of high yield bonds. The paper explains the attractive characteristics of these securities, highlighting the key differences between investing through actively managed mutual funds and passive exchange traded funds (ETFs), a commonly used vehicle to invest in high yield bonds.
"An actively managed fund can benefit from a highly experienced manager's ability to deftly navigate shifting market conditions in an effort to increase potential return," said
According to the paper, high yield bonds typically pay a higher coupon than Treasuries and high grade corporate bonds, offering a more attractive level of income. "High yield bonds may be more vulnerable to credit risk, but we believe some exposure to high yield investments may be beneficial to investors, particularly during this low yield environment - if you are investing with an experienced management team," said
High yield bonds tend to have less sensitivity to price declines than their higher quality counterparts during periods of rising interest rates, providing the potential for added security in a changing rate environment. "Of course, by definition, these bonds are riskier than their fixed income counterparts. Professional managers are continually evaluating the market and making portfolio adjustments to help investors minimize that downside risk," Parikh added.
High yield bonds share characteristics of both equities and bonds. Their prices tend to mimic the equity market yet they still offer the income potential of other fixed income investments and investors may also profit from attractive risk-adjusted returns during favorable equity market conditions. When combined with other income asset classes in a diversified portfolio, an allocation to high yield bonds may temper principal fluctuation and potentially enhance returns over the long term.
The paper concludes that against the current interest rate backdrop, high yield bonds may offer advantages to investors who have been unsatisfied with returns from traditional fixed income securities. In particular, actively managed high yield bond mutual funds may offer yield potential for individual investors, especially those nearing retirement.
To access this white paper, visit www.ridgeworth.com/high-yield. Additional research tools are also available at www.ridgeworth.com/news-insights/ridgeworth-research.
Keywords for this news article include: Investment and Finance, RidgeWorth Investments.
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