Published Fri, 20 Mar 2020 09:36:09 -0400 on Seeking Alpha
I'm launching a new series: "Don't Buy That" where I give the reasons to avoid something that is currently declining sharply.
I will offer an alternative that is a better option.
High-yield corporate bond ETFs have fallen sharply in recent weeks, but the yield is still too low to justify the risk.
High-yield municipal bonds are a much better alternative at the moment.
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Given the sudden plunge in asset prices, people are understandably interested in trying to buy the bottom of a number of beaten-up stocks and ETFs. However, some of these efforts to buy-the-dip will go much better than others. In my new Don't Buy That series, I'll explain the rationale for avoiding particular falling knives, along with offering a potential alternative to the stock or ETF in question.
Now to be clear, not all these "don't buy that" picks are going to keep going down. I'm quite optimistic on the economy and stock market; I think we'll bounce back from the virus surprisingly quickly. As such, some questionable assets will recover in value promptly. I'm not necessarily saying these are all things you should short sell. It's merely a call for prudence before buying these vehicles. In a time like this, there's so much volatility. You can gain a lot by avoiding low-quality bets and sticking to better alternatives.
To kick off this series, we're going to take a look at high-yield debt, with a particular focus on the iShares High Yield Corporate Bond ETF (HYG). To be clear, I view the whole asset class as an avoid in general at this point, and I have no particular complaint against HYG in particular. But it's a popular sector ETF, so I'm using it for this article. Also, there are certainly deals in individual high-yield bonds at the moment, and all the more power to you if you are a sophisticated... Read more
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