Rieger Report®: High Yield ETF Model Portfolio Q4 2019 Rebalance

USD High Yield ETF Model Portfolio Rebalance Q4 2019

As we enter into the fourth quarter of 2019:

  • If and I really mean IF…I was to look into moving my precious money into high yield bonds at this point I would not sleep a lot and would want to remain tactical with the easiest way out. The larger ETFs would offer that liquidity or exit capability.
  • Actively managed high yield funds with higher fees just don’t appeal to me at this juncture. Yes, they will argue that they will manage a down cycle better than a passive “beta” exposure ETF. Call me a skeptic.

Model Changes:

  • Maintaining a 60%/40% ratio of municipal high yield to corporate junk bond exposure.
  • Staying shorter duration on corporate junk in general. More comfortable with longer duration munis at this point.

Why use municipal high yield in a high yield model?

  • Net higher taxable equivalent yields help make this part of the muni market attractive for higher tax bracket investors.
  • High yield munis tend to have a lower correlation to the equity market than junk bonds.
  • There is a severe supply / demand imbalance the high yield municipal, more demand than there are bonds, helping to keep prices up and yields down.
  • The longer duration munis help extend duration risk which I feel is appropriate in this rate environment at this time.

There are two big areas of additional risk for the high yield muni asset class:

  • Much less liquidity than corporate bonds and retail investor sentiment can change quickly.


Click the above image to enlarge.

Sources: iShares by BlackRock and VanEck. TEY = Taxable Equivalent Yield and assumes a 37% Federal tax rate. Data as 10/14/2019. (1) Yield averages calculated using Taxable Equivalent Yields and are used for illustrative purposes only.

Analyst Disclosure:

  • This model portfolio is intended to be an illustration of how fixed income ETFs can be used tactically. As always, consult with your financial advisor before investing in any financial product.
  • JR Rieger or the Rieger Report LLC has not received compensation either directly or indirectly from the sponsor(s) of the ETF(s) included in this report.
  • At the time of this writing, JR Rieger does not own the ETF(s) cited in this report.

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