John Rekenthaler of Morningstar is continuing his column-a-day pace, with his Wednesday bit of mutual fund goodness asking why investors like junk bonds if they are so afraid of stocks:

Yet high-yield bond funds are popular. Cash flows into "junk bond" funds have been consistently positive, running at $10 billion for the trailing 12 months (representing a 4% growth rate on the category's current assets of roughly $250 billion)

...

I'm not able to square this circle. High-yield bond funds might be called bonds, and stock funds might be called stocks, and, yes, they show up as different colors on a pie chart...but they're much more alike than different. In 2008, high-yield bond funds diversified the plunging stock market to the tune of negative 26%. Junk bonds then roared back to life in 2009--the same time stocks roared back to life. Essentially, junk bonds are yield-cushioned stocks. There's little if any reason to like one security but not the other.

The column also has a few other new nuggets, including a jab at State Farm for an ad campaign stereotyping Chicagoans. (Yes, deep dish is mentioned.)

Check out the original column here.  

Edited by: Ben Geier


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