When choosing a new corporate investment, portfolio management is key. Whether you are using a fixed income portfolio, or variable income security, there are many options to consider. In today’s financial landscape, corporate securities that were once seen as unsavoury may be rising to the top.
Interest in corporate high-yield bonds is steadily growing, coming out ahead of other classic forms of bonds including German government bonds and first-class investment grade bonds. German government bonds have long been considered the “Gold” standard across Europe, and with the recent addition of inflation-based bonds to the market, these types of bonds may see an upswing in the future. However, first-class investment bonds, also acquired through the government, often don’t account for inflation.
High-yield corporate bonds, also known as junk bonds, are bonds that offer high payouts, because they have a lower credit rating than other bonds and more risk of default. As of late, companies with sub-prime borrowers, or borrowers that are considered a higher risk through their credit rating, have peaked the interest of investors. Just because these bonds are considered to be below investment grade, does not mean they don’t have their distinct advantages.
Corporate high-yield bonds can produce higher returns than the traditional government or first-class investment bonds. By means of thorough in-house analysis, a broad and effective diversification as well as comprehensive information flow corporate high-yield bonds can be a highly attractive form of investment, even for conservative investors. Important is, however, investors have to bring and assure a specific timeframe, “usually an investment horizon of 5-7 years is ideal in order to consider most of the different maturity terms”, portfolio manager at Genève Invest Bonds, Daniel, elucidates.
Higher-yielding corporate bonds are often purchased as an alternative to stock investments, and in the past few years, returns as high as 8 to 10 percent have been achievable. In the years to come yield calculations in the range of 7 to 8 percent per annum are predicted. So, it may be time for clients to look more closely at high-yield corporate bonds when looking at the higher yield side of their portfolio.