In early October, I commented about new market realities to embrace now. And now that quantitative easing is officially over, I'd like to highlight three portfolio changes that advisors are making in this new environment. The first change is below; look for the others in future blog postings on ThinkAdvisor.
The first trade in the series is a response to the eventual return of higher rates at the end of the yield curve. Allocations to high yield debt have been increasing ever since the junk bond correction a few months ago. The asset class has since recovered about one-half of its 4.5% drawdown, as measured by the iShares iBoxx High Yileld Corporate ETF (HYG).
The attraction of high yield is compelling. With the economy hitting on all cylinders, corporate bankruptcies will likely stay low. Muted interest rate sensitivity and a decent yield pickup relative to investment grade paper round out the reasons why many analysts are bullish.
