They may be called "junk", but high-yield bonds have historically delivered a large part of the stock market’s returns with substantially less volatility, according to Saurabh Mukherjea of Marcellus Investment Managers.
In a newsletter, Mukherjea said US high-yield bonds have generated 70% of the S&P 500’s return since 1999, while experiencing just 58% of its volatility. The difference, he said, comes down to two basic characteristics of bonds: investors receive a regular coupon, and bondholders stand ahead of shareholders in the event of a company failure. That combination has allowed junk bonds to participate in market rallies while cushioning losses when equities come under pressure.
