Demand for fixed-income investment solutions is on the rise. Some investors are looking for ways to generate income in retirement. Others simply prefer the stability of fixed-income investments over more volatile equity investments.
But with interest rates near record lows, many investors can’t generate the income they need using only government bonds. That’s why more and more investors are looking to high yield bonds to improve portfolio yields and add another level of diversification to their fixed-income portfolios.
In many economic scenarios, high yield bonds have historically outperformed other fixed-income asset classes. In periods of rising interest rates, for example, high yield bonds have historically done very well. For this reason, now could be an opportune time to add a diversified mix of high yield bonds to a fixed-income portfolio.
High yield bonds provide many advantages in a portfolio.
- Higher rates of interest
High yield bonds pay higher interest rates than investment-grade bonds to compensate investors for the added risks associated with investing in bonds with lower credit ratings. - Capital appreciation potential
Positive events in the economy, industry or issuing company can potentially reward investors with increases in bond prices. These events include upgrades in credit ratings, improved earnings reports, mergers or acquisitions, positive product developments or market-related events. - Diversification benefits
The prices of high yield bonds tend to move independently of investment grade bonds and other types of assets. Therefore, high yield bonds can help enhance diversification in your investment portfolio. - Enhance performance with less volatility
High yield bonds share some similarities with equities as they tend to be heavily influenced by developments in the corporate sector. But the income provided by high yield bonds tends to result in lower risk levels than stocks. Although both equities and high yield bonds tend to rise in value during an economic recovery, returns on high yield bonds tend to be less volatile because the income component of the return is larger, providing an added measure of stability.
Why consider RBC High Yield Bond Fund for your fixed-income portfolio?
- Access and expertise
High yield bond markets can be difficult for individual investors to access on their own. Managing a high yield bond portfolio is a specialized task requiring expertise in evaluating the risk and reward potential in each bond. The Fund gives you easy access to a portfolio managed by experienced high yield bond specialists. - Focus on quality
The Fund focuses on rigorous cash-flow analysis to identify bond issuers with a strong ability to service their debt. To reduce risk, the Fund focuses on higher quality high yield bonds. - Active management
The managers apply disciplined investment criteria to position the Fund to benefit from changes in an industry, security or the overall bond market. They pick holdings based on a complete picture of their attractiveness – including liquidity, credit quality, and many other factors. By contrast, an index fund, must often maintain exposure to lower-quality or deteriorating bonds regardless of the risks involved.
To learn more about high yield bonds, including the RBC High Yield Bond Fund, and how to incorporate this dynamic asset class into your fixed-income portfolio, please speak with your advisor.
