Junk or jewel?

August 16, 2019

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High-yield bonds behave like a "hybrid" instrument, with characteristics of both the equity and fixed income market. Such bonds carry higher levels of issuer, liquidity, and default risk, which are critical considerations for investors. With this in mind, Vanguard researchers looked at the portfolio impact of two types of high-yield positions: one funded by an investor's existing fixed income allocation, and one sourced from an equity allocation. As this new paper reports, they concluded that a high-yield position may improve the risk-adjusted return characteristics of a traditional balanced portfolio if funded by the portfolio's existing equity allocation.

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