High-yield bond funds have returned an outstanding 33% year-to-date and attracted $14.6 billion in assets, TheStreet.com reports. And for the 10 years through the end of July, high-yield bonds gained 2.9% annually, compared with the 2.2% loss in the S&P 500 Index.
Likewise, after the dot-com crash began to reverse in 2003, high-yield bonds rose 24%, and in 1991, after the savings-and-loan crisis, they returned 37%. The reason they tend to do well in the early stages of a recovery is they combine the appeal of investing in companies through stocks with the perceived reduction in the likelihood of defaults.
TheStreet.com recommends investors interested in high-yield bonds to diversify their exposure through strategic income funds, which hold junk bonds along with investment-grade U.S. issues and foreign bonds.