High Yield Bonds can provide investors with inflation busting returns. High Yield Bond portfolios which include bonds with short durations and high yields can enhance income. With this in mind you might be looking for the likes of a high yield bond fund with Vanguard or Blackrock. This article covers the pros and cons of investing in a high yield bond fund and where to find one.
Inflation is hitting record levels around the world. Investors need to be more strategic than ever when it comes to income generating investments. That’s because you need your money to work harder. Whilst a bear market and a recession are forecast for 2023, it’s not all doom and gloom. Rising yields in government bonds and the comeback of the bond market means there are investment opportunities. High yield bond are one of 5 main categories of bonds. They can offer higher returns and be a great way to diversify your portfolio. So, what are the best high yield bond funds out there? What are the best high yield bond funds to invest in for 2023? Check out 7 High Yield Bond funds that make my shortlist.
Disclaimer: This is not financial advice and you are responsible for your own investment decisions. When investing capital is at risk. This article may also contain affiliate links.
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What Are High Yield Bonds?
High yield bonds are defined as corporate bonds rated below BBB− or Baa3 by established credit rating agencies. Credit rating agencies are Moody’s, Standard and Poor and Fitch. These types of bonds offer higher coupons (like an interest rate payment) than government bonds on high grade corporate bonds. These High Yield Bonds are high-risk corporate bonds, commonly referred to as ”junk bonds”. These types of bonds have medium- and lower-range credit quality ratings. This does however mean there is also greater potential for upward appreciation as the economy or performance of the issuing company improves.
As the high yield sector generally has a low correlation with other sectors, they can be a useful way of diversifying fixed income. High Yield Bonds can be used to diversify a portfolio and provide enhanced income on top of safer government and corporate bonds. Whilst high yield bond fund returns seem attractive, these can turn sour during recessions as the likelihood companies default on debts becomes higher. The higher the risk rating, the higher the returns but so is the probability of a default.
Are High Yield Bonds good for a long-term portfolio? The risk angel of high yield bond’s isn’t necessarily a reason for not investing in them. High Yield Bonds can be added to diversify an existing portfolio. High Yield Bonds are often used by investors to enhance income in retirement. Strategic Bond funds may combine High Yield Bonds with safer government and corporate bonds. Which provides a healthy mixture of income and stability in retirement.
High Yield Bond Funds By Vanguard
You might be a keen on investing with Vanguard High Yield Bond fund. Therefore, you might be asking where you can find a Vanguard High Yield Bond Fund. Vanguard funds are usually very low cost and therefore high yielding bonds would be an excellent find.
There are two funds that appear as you search High Yield Bond Funds Vanguard or Vanguard Bond ETFs. These are the Vanguard High Yield Bond Portfolio and the Vanguard High-Yield Corporate Fund Investor Shares. The former is a US 529 fund and the later is an institutional fund.
Unfortunately, neither is good for UK retail investors like us. After searching for Vanguard High Yield Bond Fund UK, you are left with the likes of:
- Short-Term Investment Grade Bond Index Fund – Vanguard
- FTSE All-World High Dividend Yield UCITS ETF – Vanguard
- Global Corporate Bond Index Fund – Accumulation – Vanguard
- USD Corporate Bond UCITS ETF (VUCP) – Vanguard
- Global Aggregate Bond UCITS ETF (VAGP) – Vanguard
As a result, I wasn’t able to find a High Yield Bond fund from Vanguard available in the UK In fact, it’s widely known that whilst the competition is in on ‘junk bonds’, Vanguard have specifically decided not to venture into this market. So where do you go for High Yield Bonds?
Blackrock High Yield Bond Portfolio
The world’s largest asset management company Blackrock are on the other side of the fence. High-yield-bond ETFs from the two largest ETF companies, BlackRock Inc.’s iShares and State Street Global Advisors, have seen their assets more than quintuple to $27 billion combined since 2009, thanks to $24 billion in inflows, according to IndexUniverse LLC. Blackrock argued that in recent years interest rates are near record lows in developed markets like the U.S. Treasuries and investment grade credit may not provide investors with the necessary yield they need from their fixed income portfolios.
High yield bond ETFs can offer more income than investment grade bonds and U.S. Treasuries, while staying diversified with hundreds of individual bonds. Blackrock offer high yield bond portfolio’s such as USHY, HYG, SHYG for various purposes. Investors can use USHY for a broad and diverse portfolio of high yield bonds, HYG for access to one of the most actively traded high yield bond ETFs globally, and SHYG to gain exposure to short-maturity high yield. All of which have last 30 day yields exceeding 8%.
Conclusion: Investing In High Yield Bonds A Good Idea?
High Yield Bond funds have an obvious benefit of providing a high return. This comes at the catch of those bonds being of lower quality and therefore higher risk. As with all investments we want to invest in a reputable institution that we can trust. We also want the portfolio manager to do their due diligence, analysis and pick the right bonds. You don’t want to lose money on high risk investments.
So, what High Yield Bond funds are available to regular investors like you and I? There are 7 High Yield Bond funds that I’ve selected for my own personal shortlist. With this list you can avoid doing endless amounts of research on High Yield Bond Funds. This is time-consuming as it requires taking fees, performance, returns and risk into consideration. Whilst you can’t invest in a Vanguard High Yield Bond ETF there a few other places you can look!
These are relatively low cost with strong returns and income compared to the sector. You can take advantage of the expertise and experience of the fund managers. Which means that you can enhance your portfolio income, without having to continuously find and buy short duration high yield bonds. These funds does this all for you! Finding High Yield Bonds to invest in by yourself would be almost impossible. Where would you even start? So check out my personal list of high yield bond funds.
Further resources on High Yield Bonds:
- https://www.pimco.co.uk/en-gb/resources/education/understanding-hyb
- https://www.investopedia.com/terms/h/hyb
- https://www.blackrock.com/us/individual/products/227557/blackrock\hyb
- https://www.fidelity.com/fixed-income-bonds/individual-bonds/hyb
