At the moment, I prefer the closed-end loan funds that trade on the Big Board. To some extent, high yield s laggard behavior is understandable. Over the past year or so, there has indeed been a signficant uptick in defaults by companies with credit ratings below investment grade. However, I think the issue of defaults has been exaggerated. Fewer and fewer speculative companies are issuing bonds these days.
Buyers are simply too fussy.
As a result, the quality of the average new high-yield issue is improving. Meanwhile, my favorite junk-bond funds are throwing off their richest yields in a decade. Over the next year or two, I think these funds will beat just about everything else in the bond universe. The Value Line fund is our official model portfolio selection, because it s available fee-free through leading discount brokers. Both funds impose no sales charge or redemption fee if you buy directly from the fund company.