Playing Defense Pays Off for Our Favorite Junk Bond Fund
Defensive sectors weathered the April selloff well, which helped the Vanguard High-Yield Corporate outpace its peers.
Some bond market watchers say that high-yield bonds – those rated between double-B and triple-C – aren't exactly bargains these days. Others say there's still opportunity in this part of the fixed-income market.
We checked in with Michael Chang, one of two subadvisers behind our favorite junk bond fund, the Vanguard High-Yield Corporate (VWEHX), to get the lowdown. Chang, of Vanguard's in-house bond group, runs one-third of the assets in the fund; Wellington Management's Elizabeth Shortsleeve runs the rest.
Chang concedes that "it's tough to make the case that high-yield bonds are overly attractive today." But in his view, the U.S. economy is healthy, and relative to other parts of the bond market, "high yield offers decent opportunities to generate good income in a market where income is hard to come by." The fund yields just under 6.0%.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Vanguard High Yield Corporate – a member of the Kiplinger 25, the best no-load mutual funds you can buy – eked past its competition over the past 12 months with an 8.0% return, in part because Chang's portion of the fund was defensively positioned heading into the spring selloff in bonds.
He had a pot of cash and a heavy tilt toward the higher-quality end of high-yield bonds – debt rated double-B and single-B – in defensive sectors such as food and beverage, health care, and utilities. That mix of bonds weathered the April selloff well, Chang says.
Hunting for bargains
Chang and his team of 15 managers, traders and analysts also boosted the fund's performance by snapping up stakes in lower-quality high-yield debt – rated single-B and triple-C – that had sold off, "in some cases dramatically," he says. "April gave us the opportunity that we had been waiting for to invest in some names we liked" but had previously been too expensive, he says, particularly in the retail sector.
Since both he and Shortsleeve became managers of the fund in August 2022, the Vanguard High Yield Corporate Fund has returned 7.9% annualized, just ahead of its high-yield fund peers.
This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
-
Forget Financial Forecasts: Focus on These 3 Goals for SuccessWe know the economy is unpredictable and markets will do what they do, no matter who predicts what. Here's how to focus on what you can control.
-
Why In-Person Financial Guidance Remains the Gold StandardFace-to-face conversations between advisers and clients provide the human touch that encourages accountability and a real connection.
-
How You Can Turn Your Home Equity Into a Retirement BufferIf you're one of the many homeowners who has the bulk of your net worth tied up in your home equity, you might consider using that equity as a planning tool.
-
I'm a Wealth Planner: Forget 2026 Market Forecasts and Focus on These 3 Goals for Financial Success
We know the economy is unpredictable and markets will do what they do, no matter who predicts what. Here's how to focus on what you can control.
-
I'm a Financial Adviser: Why In-Person Financial Guidance Remains the Gold Standard
Face-to-face conversations between advisers and clients provide the human touch that encourages accountability and a real connection.
-
This Is How You Can Turn Your Home Equity Into a Retirement Buffer
If you're one of the many homeowners who has the bulk of your net worth tied up in your home equity, you might consider using that equity as a planning tool.
-
Dow Hits New High Then Falls 466 Points: Stock Market TodayThe Nasdaq Composite, with a little help from tech's friends, rises to within 300 points of its own new all-time high.
-
The Best Vanguard Bond Funds to BuyInvestors seeking the best Vanguard bond funds can pick between mutual funds and ETFs spanning maturities, credit qualities, tax treatment and geographies.
-
Feeling Too Guilty to Spend in Retirement? You Really Need to Get Over ThatAre you living below your means in retirement because you fear not having enough to leave to your kids? Here's how to get over that.
-
Strategies for Women to Maximize Social Security BenefitsWomen often are paid less than men and live longer, so it's critical that they know their Social Security options to ensure they claim what they're entitled to.
-
Dow, S&P 500 Rise to New Closing Highs: Stock Market TodayWill President Donald Trump match his Monroe Doctrine gambit with a new Marshall Plan for Venezuela?
