Remember the High Yield market? What could possibly go wrong? From Sober Look.
High yield bond issuance hit an all-time record in 2012, with $306 billion worth of new HY bonds coming to market by the end of October. In fact September was an all-time record month for new issue – on the back of the Fed’s latest action.
Leverage finance space as a whole also hit a new record. Adding new issue HY bonds and institutional loans (see discussion) puts 2012 ahead of 2007, the previous record.
Biderman on ETFs, dividends and float shrinks.
So far this year investors have poured billions into high dividend strategy ETFs. Yet almost all the big dividend ETFs have underperformed the market, even after including reinvested dividends. On the other hand only millions have gone into ETFs whose strategy is based upon float shrink. Companies that have been shrinking the trading float of shares the most using free cash flow have not only significantly outperformed the high dividend ETFs, but the overall market as well.
Those of you who took finance 101 might have learned that there are two ways to distribute profits to shareholders. But before a company can distribute anything, the company first has to generate a cash profit, after taxes and after all capital expenditures. What is left is free cash flow that can either be added to the balance sheet or distributed to shareholders via dividends or float shrink.
Full video below.
With the new normal world where investors experience larger volatility shocks, it is time to start thinking about those unwelcome downside moves. Some good points on volatility and how to structure the portfolio. By PIMCO.
- In addition to muted economic growth, record low interest rates, and sustained high unemployment, extraordinary equity market volatility has been a repeated feature of the past three years.
- As heightened volatility persists, many equity investors remain on the sidelines. We think a better investment approach is to invest globally, across asset classes, reflecting the likelihood of the various outcomes.
- We believe managing against downside shocks is enormously beneficial to compounding attractive returns over the long term. Equity investors should continue to focus on
higher-quality companies with strong balance sheets that are selling into higher-growth markets, including those that pay healthy dividends.