FMD Capital Management

Posts Tagged: high yield bonds

The Downfall of A ‘Yield At Any Price’ Strategy

Written by David Fabian, January 25th, 2017

Many investors are familiar with the GARP acronym, which stands for Growth At A Reasonable Price.  The basic definition is to uncover stocks with reasonable fundamentals (undervalued) that have sustainable growth potential.  The methodology seems sound and is essentially a way of saying – don’t chase price simply for the sake of recent performance.

On the flip side of that ideology is a perilous path that I have seen many investors tread in recent years.  I call it “Yield at Any Price” or YAAP.  Read more

There is No Perfect Formula For Measuring CEF Valuations

Written by Michael Fabian, May 20th, 2016

While most investors would likely believe that it’s tougher to uncover relative value in deeply discounted closed-end funds, in my opinion the hardest part of managing a CEF portfolio is knowing when to cut bait and move on.  The truth is that there is no clear formula for measuring valuation, meaning that although a fund may be trading marginally above its historical spread to NAV, that doesn’t necessarily mean it’s richly valued. Read more

Should Retired Investors Avoid High Yield Bonds?

Written by Michael Fabian, October 30th, 2015

Stocks aren’t the only cross section of risk assets getting shellacked this year. In fact, high-yield bonds were in all likelihood a strong warning indicator for trouble ahead prior to the August swoon. This sector of the fixed-income market has become highly sought after by retired investors who rely on their portfolio to generate income on a monthly or quarterly basis. But should it be?

These same investors will likely face some tough challenges ahead. Especially with decisions like whether to invest for above-average yield or total return; since one strategy is bound to significantly outperform the other. Read more

High Yield Breakdown

Written by Michael Fabian, July 24th, 2015

Could the high yield bond market be sending a precursor message to the Fed, signaling them not raise rates until 2016?

While that’s a notable possibility, the market just doesn’t seem hungry enough to gobble up excess inventory from record outstanding high yield debt levels.  Especially with intermediate to long-term fundamental challenges such as the imminent probability of a short-term interest rate hike and a barbell shaped rollover calendar centered in the 2019-2020 time frame. Read more

Bond-Boozled!

Written by Michael Fabian, March 06th, 2015

With the release of this morning’s employment statistics the 10-year Treasury Note Yield (TNX) has leapt nearly 15 basis points to 2.50%.  The knee jerk reaction in rates caused the iShares 7-10 Year Treasury Bond ETF (IEF) to fall roughly 1%, while the iShares 20+ Year Treasury Bond ETF (TLT) dropped over 2%.  This is largely in response to market participants hoping for a “goldilocks” number.  I categorize that as strong enough to keep stock investors happy with economic momentum, but low enough for bond investors to shake off worries the could Fed could raise rates mid-year. Read more