Leverage World , a reputable publication on high-yield, compiles a crude benchmark of relative performance between junk bonds and small-cap equities. This index simply divides the performance of the Russell by that of the ML index starting in the year 2000. Since then, the two indices have tracked fairly closely. For the aforementioned period in 2009, the index shows a stark underperformance of the Russell 2000 by a 2.2x standard deviation. Historically, as noted by Leverage World, such a deviation of performance has not persisted for long.
According to the ICI, for first three quarters of 2009, U.S. long-term bond mutual funds have experienced net inflows of some $267 billion in comparison to U.S. long-term equity mutual fund net inflows of just $4.3 billion. Meanwhile, globally, investors have bought into a record $2.7 trillion of corporate bonds (WSJ). (Interestingly, of the new domestic issuance in the U.S., 75% has been used to refinance old debt.)
Where does this leave us? It seems that the relative outperformance of high-yield debt combined with a glut of debt issuance bodes poorly for these securities. In terms of relative performance for the foreseeable future, it seems equities are the way to go.
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High yield closed end bond funds were yielding over 20% back in 2008and 2009. That would have been the best time in three decades to buy into these type of funds.
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