From Morningstar: 2024-08-21 07:07:00

During dividend season, coupon-hunting investors can find opportunities beyond equities in fixed income, particularly in high-yield and emerging market bonds. Bonds represent debts for issuers and credit securities for buyers, with different risk profiles from stocks. Investors must consider factors like profit growth and market reactions for successful investing.

High-yield bonds and emerging market debt offer higher yields with increased risks compared to traditional government bonds. Over the past two decades, emerging market debt has grown significantly in size and scope. Despite potential volatility, investing in emerging market government bonds can provide extra income and currency appreciation opportunities.

High-yield bonds now offer returns of 8-9%, with anticipated rising default rates in the near future due to historic rate hikes. These bonds are sensitive to economic cycles and market tensions, with limited diversification relative to equities. Considering credit spreads and capital costs, high-yield bonds may offer less attractive risk/return profiles long-term.

To diversify beyond government bonds, investors can explore high-yield bond funds and ETFs, focusing on Morningstar Medalist and Star Ratings. Emerging market bond funds in local currencies are also available for those seeking higher returns. Select ETFs in Europe offer opportunities in the Euro high-yield and emerging local currency bond categories, providing additional options for investors looking to expand their portfolios.



Read more at Morningstar: How to Find Yield Beyond Government Bonds