This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Winning Returns From Short-Term Junk Bonds

Stocks in this article: JNK SJNK HYS AGG OSTIX

To limit risks in difficult periods, some investors may prefer holding a short-term high yield fund. But over the long term, funds with greater average maturities and higher yields are likely to outperform. One solution is to hold a short-term fund and a longer portfolio. David Mazza of State Street Global Advisors argues his two high-yield ETFs can complement each other. While the short-term funds has securities with maturities of 0 to five years, the intermediate choice has most of its assets in maturities of five to 10 years.

To hold short-term high-yield securities in an actively managed mutual fund, consider Osterweis Strategic Income (OSTIX). This year the fund returned 4.5%. Portfolio manager Carl Kaufman has the flexibility to buy a variety of kinds of bonds, but in recent years he has focused on short-term high yield issues. He says that the short bonds provide relatively attractive yields. "You are not getting paid a whole lot more to buy an eight-year bond than you are to buy a two-year bond," he says.

While many bond funds hold hundreds of issues, Kaufman runs a more concentrated portfolio, owning about 100 names. He shops carefully, looking for undervalued names. When he can't find bargains, Kaufman holds cash. At the end of the second quarter, the fund had 14% of assets in cash. That helped to cushion the fund when interest rates rose in June and many high-yield bonds sank.

Kaufman often puts his cash stake to work when high-yield bonds suffer one of their periodic corrections. During the downturn of 2008, he scooped up bonds at depressed prices. He figures that another buying opportunity will appear soon enough. "The market is very nervous right now," he says. "If there are surprises from the Federal Reserve or the economy, bonds will fall, and that will be a good time to buy."

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs