This will likely affect hedge funds in the space more than mutual funds. Jeffrey Gundlach of DoubleLine Capital spoke of this when he told Bloomberg, “There’s never one cockroach. There’s never just one portfolio that’s mismarked.”
So what should investors do?
The SPDR Barclays High Yield Bond ETF (NYSEARCA:JNK) and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG) are trading at their lowest levels since 2009. If you own a junk-bond mutual fund or these ETFs, I urge you to heed the warnings.
Wait for the inevitable bounce and get out. I do not expect a disaster. But neither do I expect a rapid rebound. The markets, with their lack of liquidity, have changed and not for the better.
Junk bonds will likely be dead money for at least several years. Put your money elsewhere.
Consider high-quality stocks (not most master limited partnerships) that pay a decent dividend – or perhaps a currency-hedged fund that invests in safe foreign sovereign bonds in countries like Australia and New Zealand that pay higher yields than U.S. bonds.
This article is brought to you courtesy of Tony Daltorio from Wyatt Investment Research.