By Gershon Distenfeld

After a multi-year rally, many high-yield investors are looking for new strategies to better balance risk and return. We don’t think a deep dive into riskier credits is the answer. Instead, investors should consider moving beyond traditional boundaries - both geographic and in credit rating.

Casting a Global Net for High Yield

European and Asian high-yield investors are accustomed to thinking globally for their high-yield allocations. The fact that the US high-yield market developed first and was for many years the dominant issuing region explains some of the global viewpoint. In contrast, US high-yield investors tend to stick close to home.

But in recent years Asia, Europe and emerging regions have seen their high-yield issuance expand, diversify and become more liquid. The result? US investors may benefit from looking further afield than they have in the past.

Fifteen years ago, less than 1% of the corporate high-yield

By Timothy Strauts

With record fund inflows in 2012, investors clearly have an appetite for high-yield bond funds. The strong investor demand lowered credit spreads, and the high-yield category returned over 14% last year. While yields have been falling, high yield is the only bond category with a 12-month yield still above 5%. After four consecutive years of positive returns, is now the time to allocate money to high yield, or is the sector fully valued and ripe for a fall?

Market Expectations
Fitch Ratings and JPMorgan are currently projecting a high-yield default rate of 2% or lower, below the long-term average default rate of 4.8%. These predictions are based on United States gross domestic product growing at 2% and the European debt situation stabilizing. With the average high-yield bond trading above par and below-average credit spreads, there is not much capital appreciation available, so returns will come predominantly

Recently I wrote an article titled "Why Long-Term Bonds are the 'Dumbest investment.'" This article is the first in a series to explore alternatives to holding long-term government bonds in a portfolio, and develop possible strategies to structure fixed-income, balanced and/or target retirement portfolios for a rising rate environment.

If the expectation is for interest rates to increase in the future, the obvious strategy would be to go long interest rates. The way an investor can go long interest rates is by buying an inverse bond fund. Whereas bond prices fall when interest rates increase, inverse bond funds increase in price when interest rates increase. They essentially are the mirror image of a bond. Here is a chart of the ProShares Short 20+ Year Treasury (TBF) and iShares 20+ Year Treasury Bond ETF (TLT) demonstrating their inverse behavior.

(click to enlarge)

A few things to note from that