Although inception was November 28, 2007 The SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK) has been a ETF (Exchange Traded Fund) success.
Market timing of interest rates and debt products are as important in portfolio management as market timing in equities.
The security analysis of bond and debt instruments can be very complicated for the average investor. Issues of safety and return of their investment is a prime consideration when investing in bonds. The safety of any debt instrument often changes under different economic conditions and different industry economic outlooks. A bond that was very safe 5 years ago with an AAA rating, be become today’s High Yield Bond. When I was young, they called High Yield Bonds Junk Bonds. Whatever you call them, their safety is not the same as AAA corporate or U.S. Treasuries. The yields an investor will be able to obtain in High Yield Bonds are attractive. The underlying ability for the issuer to pay those interest payments and be able to refinance the debt is another subject.
Corporate Debt investing is very sensitive to economic conditions. A economy that is faltering will reduce profits and therefore the cash available by companies to service debt. A more optimistic economic environment usually produces greater profits and improves debt coverage ratios available to pay debt.
The November 2008 to February 2, 2010 period is a good example of how dramatically the economy can play into High Yield Bond values. By using a trend following approach to High Yield debt, I believe it would serve a active portfolio manager than Buy and Hold.
Past performance is no guarantee of future results, but this example shows how trend following trading techniques often mimic the economic prospects and therefore makes it a favorite trading style of many portfolio managers.
You can obtain ETF trading signals for the ETF JNK by going to www.seleznovcapitaladvisors.com
For more information on SPDR ETF’s for debt and equity indexes visit www.spdrs.comFor more information on the Rydex High Yield fund which uses the Barclays Capital U.S. Corporate High Yield Index