In today’s economic environment, the search for yield has brought many investors to consider high yield bond investments. But has the time to invest in this asset class passed?
Why High Yield? Consider these important points:
High-yield continues to produce favorable yields vs. investment grade bonds
Company fundamentals are solid as evidenced through low default rates, about 3%, as compared to historical averages of 4-5%.
Returns have been historically better than investment-grade bonds and similar to equity, with less volatility
High-yield fixed-income securities, also known as “junk bonds,” are considered speculative, involve greater risk for default and tend to be more volatile than investment-grade fixed-income securities.
For over 50 years, TIAA-CREF has been investing in high-yield bonds. The TIAA-CREF High-Yield Fund offers investors:
1 Source: Morningstar as of December 31, 2012. Morningstar is an independent service that rates mutual funds and variable annuities. The TIAA-CREF High-Yield Fund is included in the Morningstar High Yield Bond Category and is rated as follows: Overall rating 5 stars out of 517 funds, 3-year rating 4 stars out of 517 funds and 5-year rating 5 stars out of 459 funds and 10-year rating is not applicable. The overall star ratings are Morningstar’s published ratings, which are weighted averages of its 3-, 5-, and 10-year ratings for periods ending December 31, 2012. Current rankings may be higher or lower on a monthly basis. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. Where applicable, Morningstar’s performance rankings are based on linked performance that considers the differences in expense ratios, while actual performance data shown does not reflect such differences. The top 10% of funds in a category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars and the bottom 10% receive one star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) Morningstar proprietary ratings on U.S.-domiciled funds reflect historical risk-adjusted performance, and are subject to change every month. They are derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics.