High Yield Continues Performance

by Jay Pestrichelli on June 25th, 2012

No surprise that declining markets turn into lower equity performance vs high yielders, but how far has it gone?
Lets look at some of the high yield ETFs we’re written about in the past over a 3 month window.

LQD is a corporate debt ETF by iShares composed of investment grade corporate bonds.  The yield approximately 4.2% and has held up well and actually gained some ground. It has become home for those looking for investment grade security, but want higher yields than US Treasuries that are at all time low interest rates.

PFF is an iShares ETF that is made up 100% of preferred shares of financial companies. Holdings include Wells Farfo, Citigroup, HSBC, and Barclays to mention a few. These shares are very different than common stock and causes this ETF to trade more like bonds than stock due to its higher yield of 6%.

JNK is SPRD’s junk bond ETF and has a yield of 7.5%. We have talked about multiple ways to trade this ETF due to its very active options market. In the past we’ve shown examples of how to use put spreads to capture the dividend without owning the actual ETF. However, a more traditional position of a married put will allow you to stay protected and earn the dividend.

The SPY with its dividend of only 2% has underperformed over the last 3 months and if the market continues to stay volatile, expect investors to run to the high yielding ETFs as a means of keeping their heads low and out of the line of fire.

As Buy and Hedge investors, we know that downdrafts are limited when rule #1 is followed (Hedge Every Position).  The emotional tendency to run to these safe havens when times look tough should be placated by the hedged positions we hold.

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