April 15, 2009
“Six talented managers are finding value in various corners of the market,” according to a cover story in Barron’s.
In the article, “Six Top-Notch Bond Funds; Mutual Fund Quarterly Report for the First Quarter of 2009,” the T. Rowe Price High Yield Fund (PRHYX) was named a “top-notch bond fund.” According to the article, “Barron’s has picked a half dozen top-notch mutual-fund bond specialists that investors should consider. Their managers share three characteristics: They’re conservative, savvy and experienced.”
The High Yield Fund, which has been managed by Mark Vaselkiv since 1996, gives aggressive investors an opportunity to earn high current income and capital appreciation. High-yield bonds traditionally have offered greater yields than Treasury securities and investment-grade corporate bonds. The fund also can provide effective diversification for the fixed-income portion of a portfolio since high-yield bond performance is not closely correlated with other bond asset classes.
High-yield bonds carry a greater default risk than higher-rated bonds. Yield and share price will vary with interest rate changes but to a lesser extent than a portfolio of high-quality bonds. There is also a liquidity risk—the chance that the fund may not be able to buy or sell bonds at desired prices without causing substantial price swings. Diversification cannot assure a profit or protect against a loss in declining markets.
“Be aware that corporate defaults are climbing—and are expected to continue to rise as many credit-challenged companies are unable to refinance their high-yield debt when their bonds mature,” the article notes. “This probably won’t change until the economy shows signs of reviving. That said, portfolio manager Mark Vaselkiv has loaded up on cheap leveraged loans backed by assets that don’t have to return to par to offer a nice return. That’s reason enough to give a look.”
Source: Barron’s Magazine, April 6, 2009. Copyright 2009, Dow Jones & Company, Inc. Used with permission.
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