Don’t come late to the party…. March 1, 2011
Posted by forwardfinancialplanning1 in High Yield Bond Funds, Investing-General.add a comment
Several previous posts ( Dec 15, 2010 , et. al.) on this site have commented on the huge cash inflows into bond mutual funds over the past two years, suggesting that this often indicates “performance chasing” on the part of investors. Now that the yields on most investment grade bond funds have bottomed at rates that are at multigenerational lows, the cash inflow phenomenon may have spread to high yield bonds. According to EPFR Global, cash inflows into high yield funds reached a record net of $1.4 billion for the week ended February 9. This took place despite the fact that for that same week the yield of the Merrill Lynch US High Yield Master II Index stood at only 6.87%. This yield was only 3.26% above the Ten Year Treasury, a far cry from the 22.3% difference at the December 2008 height of the credit crisis. Once again, investors might be chasing performance as the average high yield bond fund gained 18.4% during the past 12 months, including reinvested dividends. If history is any guide, this trend will not have a happy ending, so one should think twice before joining this party.
