The best and worst bond funds for 2022

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Junk bonds have never paid so little. Which makes them useless. We’re here for returns, not quality of credit!

Fortunately, we can improve our dividends and our security by being smarter. We’re just going to sell popular bonds at 4% + and replace them with better 8% + equivalents.

First the dogs. Anyone who owns one of the two most popular high yield bond ETFs today is a sad income investor. Their yields are at their lowest. the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), for example, pays only 4.3%!

And it’s worse, because that dragging the yield promises to be better than that of the coming year. JNK SEC yield, a more precise estimate of what the fund will actually distribute over the next year, is only 4.1%.

Bin brothers iShares iBoxx High Yield Corporate Bond ETF (HYG) is even worse. Its SEC yield is a measly 4%.

Put a million dollars in that 4% portfolio, and we only collect $ 40,000 in dividends per year. And we have to admit to our friends and families that we are “all in” on the junk!

We will leave JNK and HYG to the “first level” bond hires. You and I should take the elevator to the second floor instead.

Here, we will hire the “god of bonds” Jeffrey Gundlach to select our fixed income portfolio. And, above all, it will work for us for free!

I’ll explain his comp contract in a moment. First of all, let’s appreciate the link god’s access. Gundlach and his team at DoubleLine get better bond deals than you and me. The bonds he buys simply pay more and, as a result, his closed-end funds (CEFs) pay up to 8.3%.

DoubleLine calculates the credit quality numbers so you and I don’t have to. They also monitor the Federal Reserve and adjust their portfolio duration, or sensitivity to interest rate hikes.

Net-net, they’re worth every penny. But if we buy the DoubleLine funds at the right time, we don’t need to pay a dime at all!

Here’s why. As I write, DoubleLine Income Solutions Fund (DSL) trades for just 93 cents on the dollar. This is a unique feature of CEFs – they have smaller market caps than bond ETFs, so their prices can fluctuate wildly. And they have fixed amounts of shares, which means discounts (and bonuses) are possible.

As opponents, we demand discounts. And it doesn’t get better than a 7% discount with DSL.

The fund’s 8.3% return means $ 1 million earns $ 83,000 per year in dividend income. This, by the way, is paid for monthly– which corresponds well to our expenses for every 30 days. And we have a margin of safety, being able to buy the Shard of the Bond God for just 93 cents on the dollar.

Brett Owens is Chief Investment Strategist for Contrasting perspectives. For more great income ideas, get your free copy of his latest special report: Your Early Retirement Portfolio: Huge Dividends — Every Month — Forever.

Disclosure: none


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