The decadent offering of barbecued ribs at a weekend party is similar to that of high yield fixed income investments. By taking on greater risk of spilling sauce on your shirt you have the experience of a true summertime staple, and with high yield fixed income investments you are positioned for potentially higher income. Just like the ribs, you don’t want to overdo it too much on high yield; put a sensible amount on your plate to get a taste of the flavor and little extra yield potential, but not so much that it leaves you feeling queasy from too much volatility.
Emerging Market Spicy Kebabs
For those who want a little more adventure on their menu, there’s always the option of adding some unique flavors like spicy kebabs. This is the equivalent of adding some emerging markets fixed income to your bond portfolio. You may run the risk of a little heartburn, with occasional volatility and currency risk, but no cookout is truly complete without a little spice thrown into the mix. It helps you balance out the blandness of some of the healthier options, and gives the overall meal a nice flavor kick. And here, flavor means yield potential.
So what is on my plate? I have always been a mixed grill guy. Load up on the healthier staples like chicken and steak, throw in a couple ribs and kebabs to heighten the flavor. Create a diversified plate and you will be on your way to a balanced source of income and a happy meal. Wishing everyone a safe and happy holiday weekend.
Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog. You can find more of his posts here.