High-yield bonds may pay off for investors

High-yield bonds may pay off for investors

The recent dramatic gyrations in financial markets have driven home to investors the importance of protecting their portfolios from the pain of extreme volatility.

One strategy that can help is to invest in assets that provide a steady income stream, such as dividend-paying stocks as well as bonds.

Such investments are especially crucial for older investors who have retired or are nearing retirement. But they can also be a valuable part of any portfolio, as they add to an investor's total returns and help smooth out the investment ride over the years.

In particular, high-yield bonds may be of interest to investors seeking better returns amid low interest rates, according to money managers.

"High-yield bonds offer investors the opportunity to benefit from higher income in a low-interest rate world," said Mr Ben Tai, head of distribution at Allianz Global Investors in Singapore.

"The US high-yield market is the largest in the world and offers investors attractive risk-adjusted investment opportunities in today's environment of low growth, low yields and high volatility," he added.

"Adding yield to portfolios helps to add stability, boosts total return and can provide an extra income stream, which is particularly important in today's volatile market."

US high-yield bonds make up about 80 per cent of the high-yield bond market and have a total value of about 21/2 times that of Singapore's stock market, according to Allianz Global Investors.

One measure of the market's performance shows that between 1988 and last year, high-yield bonds have delivered only five years of negative returns, going by the BofA Merrill Lynch US High Yield Master II Index.

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