Eq: Large Cap

(New York)

Want to maintain your portfolio’s income, but also afraid of rising rates? Many are, as it is a difficult challenge keep income high but not experience losses. With that in mind, here are a handful of mutual funds which should help do just that. One area to look for diversified income right now is in multi-asset income funds. Some of the best are the American Funds Income Fund of America (AMECX), the Vanguard Wellesley Income (VWINX), the BlackRock Multi-Asset Income (BAICX), the JPMorgan Income Builder (JNBAX), and the Principal Global Diversified Income (PGBAX).

FINSUM: Many of these funds are quite old and have had great performance. Fees are all over the map, but one of the areas where they tend to succeed is in having good performance with lower volatility than the market as a whole.

(New York)

By now one would have expected junk bonds to have experienced a large selloff. The sector already had a low spread to Treasuries, has mountains of fringe credits, and has been facing a period of rising rates. Yet, high yield has been performing very well, with the weakest credits, paradoxically, performing best. There has been no sustained flight out of the sector, and spreads are higher than at the start of the month, but still not even where they were for much of the year.

FINSUM: The big risk here is that investors aren’t being paid enough for the risks they are taking. The whole junk sector, not to mention the loads of BBB credits that are technically investment grade, are very susceptible to recession and higher rates. At some point there are going to be some major losses.

(New York)

Junk bonds have had a rough monthly, and it is not hard to see why. The rise in yields and the anxiety about stocks have combined to push yields on junk steeply higher, from 6.18% on October 1st to 6.61% now. In aggregate, the bonds are down 1%+ this month. However, the truth is that the losses could have been much worse, and within that idea, is an important story. That story is that ETFs, which have offered much greater ease of access to investors, actually seemed to have supported prices in the recent turmoil. The head of bond trading at Oppenheimer put it best, saying “The ETF market, which was supposed to subtract liquidity from credit markets, is actually adding liquidity by aggregating the risk and bringing in people who want to take macro risk as opposed to micro bond level risk … The ETF market ends up providing the live bid-ask spread that even the credit markets themselves cannot generate”.

FINSUM: This is a fascinating argument as it runs counter to the long-running narrative about how fixed income ETFs could cause a big blow up because of a “liquidity mismatch” between ETFs and the underlying asset.

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