Yield-starved investors have ventured into exotic – and often risky – assets, including hedge funds, non-traded REITs and private placements. But an asset class that has been around since 1893 offers a compelling combination of low risk and high income. A carefully selected portfolio of closed-end funds (CEFs) will yield 8% with less volatility than the S&P 500.
None other than Gluskin Sheff’s Dave Rosenberg, the widely followed analyst who was been consistently bearish in the current market cycle, said last week that high-yield (HY) bonds are “a good place to be right now.” Recent price declines have made them attractive in the short term, and their risk-adjusted returns make them attractive to longer-term strategic investors.
Bill Gross made headlines in February by asserting that U.S. Treasury bonds were not providing enough yield to make them worth the risk and reducing his allocation to zero in the PIMCO Total Return Fund (institutional share class PTTRX). The subsequent rally forced him to admit his mistake in August, but by then his fund was trailing 90% of its peers and having its worst year since 1995. I will examine Gross’ February decision in retrospect, to illustrate its tactical and strategic costs and benefits for his shareholders.