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.
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.
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.
Past performance of any investment product or index referenced in the Rieger Report is not an indication of or guarantee of future results.
The Rieger Report LLC is not an investment advisor, and the Rieger Report LLC makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. A financial advisor should be contacted to determine what may be best for your individual needs. The Rieger Report LLC is not a financial or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. No legal relationship is created between you and Rieger Report LLC.
The Rieger Report LLC does not act as a fiduciary or investment advisor. While the Rieger Report LLC has obtained information from sources it believes to be reliable, the Rieger Report LLC does not perform any audit or undertake verification of any information it receives.
The Rieger Report Rankings and model portfolios are opinions of relative ranking among the peer group analyzed as of the date expressed and not statements of facts. Rieger Report model portfolios are intended for illustration only. Any opinion or analysis decisions are not to be construed as recommendations to purchase, hold or sell any securities or to make any investment decisions, and do not address the suitability of any security. The Rieger Report LLC does not assume any obligation to update the content in this publication in any form or format.
Your use of any information from this document or presentation is at your own risk and without recourse against Rieger Report LLC, its members, managers, or employees. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.