Beware of Pandering in the Income Patch
Products catering to yield-hungry investors are calling. Don't pick up.
The stock market touched a new high this week, but the 2007-09 market crash is still fresh in many investors' memories. And many of those same investors seem to have concluded that a bird in the hand--in the form of regular income distributions--is better than two in the bush. Retirees and pre-retirees who have crunched the numbers and are concerned about running out of money have also latched onto income-producing vehicles, no doubt viewing current income production as a way to guard against prematurely depleting their nest eggs.
Fund flows tell the tale: More than $300 billion in new assets have flowed into bond funds during the past year, with income-rich categories such as multisector, high-yield, and emerging-markets bond funds seeing some of the biggest inflows. Categories such as bank-loan, nontraditional, and high-yield municipal bonds, which up until now where niche areas for investors, have also garnered strong new asset flows.
Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.