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High-Yield Investing in 2017: Be Prepared and Prepared

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High-Yield Investing in 2017: Be Prepared and Prepared

In addition still thinking about your investment strategy for 2017. If you’re an income-conscious investor, try thinking. Assuming something unexpecte  may happen next yea. It’s time to protect your portfolio now. Such advice appears to be at odds with current market sentiment. Recent performance in financial markets shows that investors equate trump with accelerating economic growth and rising. Inflation.  Both of which favor higher-yielding. Nriskier assets such as high-yield bonds. Yes  the strong      performance of the u.S. Economy and some of the policies introduced by trump are expected. To bring upward space for high-yield bonds. Alliancebernstein also recommends that investors should maintain their layout of high-yield assets. But what if the unexpected happens. What if congress blocks some of trump’s policy measures. Or is the economy accelerating at a slower pace than expected. Whenever the market sprints strongly in a single direction. It may be useful to unearth the inherent contrarian thinking. That will benefit individual portfolio performance.

Reduce investment risk in high-yield bonds

For instance Adopting a contrarian investment strategy  of your high-yield bond positions. On the contrary  shortening the duration and focusing. On the physique of bond-issuing companies is a better way to reduce risks. According to Alliance Bernstein’s research, in the long run, high-quality, short-duration high-yield bonds can capture about 80% of the market rally, but only participate in 70% of the market decline (below).Why are the two qualities of “high quality” and “short duration” so complementary to each other? First of all, shortening the duration means that the impact of rising interest rates on investors is low, and the Romania Phone Number impact is similar to the short-term fluctuations in the general market. So when the market goes down, short-duration bonds perform better.The same goes for investing in high-quality bonds. Compared with CCC-rated junk bonds, high-rated bonds issued by companies with strong balance sheets can better withstand the impact of rising financing costs and capital outflows.However, such an investment strategy is not a long-term solution, especially now that we are at the end of the credit cycle. Even if the new policies in the future really accelerate the growth of the U.S. economy, interest rates will inevitably rise, which may cause some CCC-rated bond issuers to default.

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Get out of the corporate debt framework

After that Besides high-yield corporate bonds, there are other sources of income in the market. This is why the investment strategy of the global multi-currency securities is so important. The most effective high-yield investment strategy is usually one that can master multiple sources of income globally.One source of income is emerging market local currency bonds. After the U.S. presidential election, high-yield corporate bonds continued their pre-election rally, but at the same time, rising U.S. interest rates and fears caused by Trump’s trade protection policies caused significant selling pressure on local currency bonds in emerging markets, which in turn made investment evaluations difficult. Attractiveness emerges – especially in emerging countries that continue to fight corruption and clean up their finances.Another source of potential income and diversification: U.S. securitized assets, especially Credit Risk Transfer securities (CRTs) issued by U.S. government-backed mortgage lenders, namely Fannie Mae and Freddie Mac . Credit risk transfer securities allow investors to invest in the strong U.S. housing market, and their floating-rate features are even more attractive in an environment of rising interest rates. Unlike government agency bonds, credit risk transfer securities carry credit risk, but high yields can adequately compensate for the risk investors take.

 

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