Stockchase Opinions

Philip Doyle SPDR High Yield Bond E.T.F. JNK-N COMMENT Aug 20, 2010

High-yield bond ETF. Pretty good high yielding ETF. Reasonably low expense ratio. If you're holding this in a Canadian account it would make sense to hold a hedged version.
$39.100

Stock price when the opinion was issued

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(A Top Pick Oct 19/09. Up 13.24%.) Still looks good.
PAST TOP PICK
(A Top Pick Jan 6/10. Up 8.6%.) High Yield Bond ETF.
DON'T BUY
Junk bonds, below ‘BBB’. These are not for the beginning investor. It is higher risk. Would prefer XSB-T.
DON'T BUY
Getting a 7% yield. Good for a long term hold? These are junk bonds. Investors globally are reaching for yield and are going further and further out on the yield curve, further duration and lower credit quality. He personally wouldn’t go there. This is a great deal of risk.
BUY

He has a positive view on the economy that there will be no recession and there will probably be a pickup in US growth in the 2nd half and the default rate on high-yield bonds will stay relatively low. Thinks you will get a 6%-7% return in the next year. However, this is not hedged so there is a currency risk. (See Top Picks re: XHY-T.)

DON'T BUY

Symbol JNK, stands for junk and that is what you are getting, a junk bond. Yields look very, very attractive but junk bonds have substantial credit risks in them. When you have a recovering economy, it is perhaps not a bad idea to be in them but he thinks that game is already gone where it is going to go.

COMMENT

There is a portion of it for fixed income portfolio but would favour no more than 5% in it. Expect you will get 5%-5.5% this year. Capital gains days are over for these funds, but will still produce income. Pretty safe.

COMMENT

He has been building his exposure in this because on a relative basis, if stocks do pullback 10%, something like this may only sell off 4%-5%. You could Short this. Not sure there is an inverse ETF that plays high-yields at this point. High yields are the most expensive they have ever been in terms of where yields are and where prices are.

COMMENT

He is in favour of high-yield bonds. Ishares High-Yield Bond (XHY-T) that he favours, because it is hedged to the Cdn$. High-yield bonds have seemed to recover from the nasty shock that occurred when the energy price disaster hit in the 4th quarter. About 20% of the US high-yield market is in energy bonds.