High Yield Index Total Returns by Credit Quality 10 Years
Ended December 31, 2011

Higher quality high-yield bonds have provided investors with better returns than lower quality bonds over the long term.  We feel there are two distinct markets: higher quality B and BB rated companies could be considered more as “going concerns” while CCC and lower rated companies are more “financially distressed.”  In our opinion the 10-year period is indicative of a full market cycle.  

The higher credit quality BB and B rated bonds have offered the best return for the investor seeking constant exposure to a diversified bond portfolio. We purchase only BB and B rated bonds.  Over the 10 years the better quality high yield bonds provided a return advantage over investment grade bonds, surprising in light of the economic and political cycles weathered which included a significant recession, 9/11 and the technology collapse in 2003 (the “tech wreck”).  Performance relative to the S& P 500 is another significant statistic, in light of the much lower volatility of high yield bonds.  Also their outperformance of the Investment Grade Barclays Aggregate Bond Index provides another good reason to include them as a long-term core holding.