1. Searching for
Higher Yield
Investing for Yield in a Low Interest Rate
Environment

2. Investors have historically looked to fixed-income investments to provide them with safe and predictable
returns. Yet, to pump up the economy, the Federal Reserve has pushed interest rates down to historic lows.
In effect, interest rate investors are bailing out the banking system with low interest rates.
Bank CDs are earning .5% on 1-year CDs, money market rates are a paltry .18% and the 10-Year Treasury
Bill is paying 1.5%. The chart below shows the 50-year history of the 10-Year Treasury since 1962. The
glory days of 1980 with 10-Year Treasuries earning 16% are long forgotten.

3. Yes, yields can go lower, but eventually, what goes down will go up. The massive federal borrowing to
inflate the economy will come back to haunt us with higher interest rates.
Rising interest rates will have a catastrophic effect on a bond portfolio. This table shows that an increase
in yield from 1.5% to a more normal 5.5% rate will cause the value of a bond to decrease by 29.89%.

4. The majority of bond investors invest in bond mutual funds. When interest rates begin to rise, the value of a
bond mutual fund will decrease, with no prospect for recovery of principal.
Managed High Yield Bond portfolios offer income investors a safer alternative. High Yield Bonds are a
hybrid asset class in that they don't behave like a stock, nor like a bond. This chart shows that you would
have achieved a greater return in High Yield Bonds than the stock market since 1990, with less risk and
volatility.

5. I work with a number of portfolio managers that offer actively managed, High Yield Bond portfolios. Active
management is about capital preservation, achieving above-average returns, and non-correlation to the
markets for enhanced diversification. Adding this to a portfolio can provide tremendous value and stability.
Capital Management Group has been offering a High Yield Bond portfolio since 1993, Mutual Fund
Strategist since 1992. Both are up over 5% in 2012 net of fees. Capital Management Group's performance
since 2000 is set out below.