NEW YORK ( TheStreet) -- In the last few weeks markets have reacted swiftly to the threat of the Federal Reserve beginning to "taper" its bond purchases and other accommodative policies. An end to the current Fed policy would result in higher yields and lower prices for bonds and bond funds.
To avoid further large declines in their bond fund portfolios, investors will need to seek out more alternatives that have less interest-rate sensitivity. This is where the new PowerShares Global Short Term High Yield Bond Portfolio (PGHY) can help.
The fund can own sovereign debt, quasi-government debt and corporate debt. It is a high-yield fund so the credit quality is low. The ratings breakdown allocates 48% to BB-rated debt, 24% B and 21% in C rated bonds.
PGHY is a global fund, which means it includes domestic debt. The U.S. is the largest country at 47%, followed by Luxembourg at 7% and smaller weightings to more emerging markets including the Ukraine, Lebanon and Venezuela. The holdings are denominated is U.S. dollars so there is no direct currency risk but a currency crash in Lebanon, for example, would adversely impact the price of any dollar denominated debt from that country.It is too soon for there to be any definitive yield information for the fund but PowerShares reports that yield to worst (yield to worst means the least favorable situations where any debt is called in early) is 4.75%, which would be a very high yield considering that the effective duration is 1.75 years. PGHY has 31 holdings in all and investors will be familiar with some of the names. The fund owns individual issues from Sirius XM (SIRI), Chesapeake Energy (CHK) and Ally Financial (ALFI). Some of the more exotic holdings include Petroleos de Venezuela and Finansbank Turkey. With only 31 holdings, some of which have 4%-5% weightings, a default from even one bond would be a large drag on the fund's performance.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV