Q: In light of the current interest rate environment and the possibility of a US recession in the coming months, what is your current opinion on ZHY and generally high Yield US bond funds? Do you remain comfortable owning these funds in a relatively conservative income portfolio?
Many thanks.
John
Many thanks.
John
5i Research Answer:
With US GDP at 4.9% last quarter, and full employment, we are, for now, a long way from recession. Certainly all the rate hikes may still have an impact, but the decline in corporate profits reversed in the 3Q, and (general) outlooks have been mostly positive. XHY is up 5%, not bad considering the rate curve. Corporate spreads of course will vary with sentiment, but we would be fairly comfortable holding this ETF right now. It should be considered riskier than a government bond fund, but as 'part' of an income allocation we would consider it quite fine.