Friday, December 19, 2008

A way to bet on the debt market recovering

As anyone who has followed the financial crisis knows, the debt markets are currently "challenged." No one trust each others paper, spreads are cavernous, and volume is low.

The Managed High-Yield Plus Fund(HYF) is a good way to play the eventual recovery.

The Managed High Yield Plus Fund is a diversified, closed-end management investment company. The Fund's primary investment objective is to seek high income. Its secondary investment objective is to seek capital appreciation. The Fund will primarily invest in a diversified portfolio of lower-rated, income-producing debt and related equity securities.

These guys are more comfortable with junk than Fred Sanford. They have holdings in gaming, wireless, and publishing, some of the more distressed industries out there.

Sure, there are safer ways, but the risk reward ratio is much higher here. Nonetheless, be warned. This is a tiny closed-end fund with a yield of over 20%. That might make it seem speculative, but it's not. It, like a lot of things right now, is just mispriced.

I think that there's too much fear in these prices. When the market turns it the most marginal businesses that get the biggest pop. As regular readers of this blog know, I like to invest when things look really bad. Right now, we've got a record number of junk bond defaults. Yes, the market can get worse, but probably not much worse. Since I don't know when things are going to turn around, I'm buying know and waiting for the recovery.

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