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Originally Posted by travelmate38
I'm looking at buying some funds and have been doing some extensive research this week. There are some nice looking Asian funds, as our downturn has had little if any affect on their markets. However, I'm leaning towards some high risk / high return bond funds. I think in the coming months, there are going to be some real value in government bonds issued. One fund I've been thinking of buying into has a market cap of $227 million with about 45% invested in recently acquired BBa or better bonds at 9% or more! Then another 32% in AA bonds at about 5-6% the rest in Money market accounts.
I know it is a risk, but I for one do not think things are as bad as we previously thought. I think an aggressive bond fund, right now could bring a 5 year return of 15-20% quite easily.
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From what I understand, though the proportions are different, growth in certain areas of Asia may also be constrained by energy costs. That doesn't mean that you can't select the right sectors, geographical areas, and particular funds.
As for government bonds, I assume you are talking about international government bonds, and not US. There indeed may be some opportunities there, certainly less risky than corporate bonds.
As for corporate bonds, I agree that this area holds out some attractive potential total returns. Be aware, however, that Moody's (though its credibility may be shot) expects the global default rate, especially in the US, to increase from around 1% last year to around 2%-3% currently to around 6% by year-end.
If you buy corporate bonds now, you may get caught up in a wave of defaults, how big or small a wave is hard to predict. But with proper diversification, you may be able to ride it out and, indeed, enjoy 15%-20% total returns over the next 2-5 years.
One corporate bond ETF I follow is CIF. It has dropped around 30 cents, or around 10%, since the last market swoon (down around 25% since August 2007). Current yield is 10.75%. Please feel free to share any specific funds you are tracking.
Besides the risk of default, one other concern is that if US Treasury rates increase, that may suck in capital that would otherwise go to other government and corporate bonds. Or do you expect US Treasury rates to remain low?
More conservative areas I am looking at are global infrastructure, farm land (though direct fund access to diversified investment grade is hard or impossible for small investors, you have to do it by proxy), of course energy, but maybe on a dip, and maybe health care depending on how the US fiasco plays out over the next 3-18 months.
Coal and steel, also in connection with energy and global infrastructure, may also continue to do well.
Good luck!
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