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Investment Analysis Clubs / Value Hounds
|Subject: Re: tough times for yield||Date: 3/25/2013 3:44 PM|
|Author: TMFKMHinson||Number: 14031 of 21606|
"At this point though, I am trying to find something that is not individual bond investments. Unfortunately I don't have the luxury of waiting for a well constructed bond ladder to start paying. I need the returns ASAP"
Hey KitKat... Have you looked at the BDCs at all? It seems that yields are compressed where institutional money can go. I read a printed article somewhere recently that talked about the divide between junk bonds that are big enough for institutional money and those that aren't... the former having yields compressed down into the 6ish% range while the latter still yield 10ish% (going from memory). So if you could get into a smaller fund that avoids bonds that make their way into the Pimco portfolios and the like, you might do ok.
Howard Marks wrote about junk recently too...
So might Peritus's ETF be an attractive component? With avg. effective duration of a bit more than 3 years and better than avg yields because they're small?
It seems this logic would extend to the BDCs too, since they fill the void left by banks' business loan divisions and loan to companies too small to issue commercial paper. Ares Capital is one... they yield 8% and I think their funding is ~2/3 fixed rate with an avg duration of ~10 years... they'd fare ok in a rising interest rate environment, but share price would likely get hammered on default fears in a recession... I can't predict either of those though... it's of note that they paid a dividend throughout the last recession, but their shares did get hammered. I haven't dug into them too deeply yet, but will if they drop below p/b of 1, which would require about a 10% drop in share price. Food for thought?
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