If Stocks Are Bad, Why Are Junk Bonds Good?
Equities may have higher prices, but their reputation remains low.
Everyday investors don't trust stocks. Yesterday, Franklin Templeton asked in an advertisement, rather plaintively, "Is it time to put your money to work? Time to take stock." (A pun!) Merrill Lynch and Wells Fargo bosses are urging advisers to overcome their clients' skittishness about equities. Over the past 12 months, net sales of stock mutual funds have been barely positive, while bond funds have picked up another $300 billion. The shadow of 2008 continues to linger over stock investors.
Yet high-yield bond funds are popular. Cash flows into "junk bond" funds have been consistently positive, running at $10 billion for the trailing 12 months (representing a 4% growth rate on the category's current assets of roughly $250 billion). The Wall Street Journal's Jason Zweig reports that plan sponsors are currently considering whether to add high-yield bond funds (among other specialized fixed-income funds) to their lineups.
John Rekenthaler has a position in the following securities mentioned above: VTI. Find out about Morningstar’s editorial policies.