How junk are junk bonds? By Blackfort CIO Dr. Andreas Bickel

 

How junk are junk bonds?

At Blackfort Capital we invest roughly 90% of our managed assets into high yielding hard currency bonds. If you will junk… but according to the below quoted study this does by no means mean higher risk and lower returns. By the contrary: Over 200-year, including all crisis and defaults, a portfolio with sovereign emerging market bonds would have delivered 6.8% real return p.a. slightly less than US equities. The interesting part is that on a risk-adjusted basis (measured by the Sharpe ratio) the risky bonds outperform all shown asset classes. Risk free government bonds delivered 4% p.a. with a lower Sharpe ratio. Noteworthy, US dollar corporate bonds (i.e. investment grade bonds) have delivered negative real returns. A weird outcome, but if history is any guide, consider to allocate more asset to junk bonds and US equities. Avoid low yielding IG corporate bonds.

 

 

Source: https://www.linkedin.com/feed/update/urn:li:activity:6530094415653011456

Published: 13.05.2019 by Blackfort CIO Dr. Andreas Bickel

 

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