The 125 05 Timing Model of High Yield Bond Strategy by Gerald Appel

High yield bond fund, also known as junk bond fund could be timed using some simple timing strategy to enhance the return while reducing the volatility. The majority of high-yield bond funds include interest income in their daily pricing, the movement of which actually reflects the total return of such funds-changes in the values of the assets they hold, plus the income stream. Simple timing strategies can be followed to capture the high return of high yield bond while reducing its risk:

  1. Choose a high yield bond fund. Good candidates include ETFs such as HYG, JNK and PHB or mutual funds such as VWEHX and PRHYX. Keep in mind that for a mutual fund, one might have to pay for the short term redemption fee. Some bond funds such as Rydex High Yield Strategy RYHGX or Access Flex High Yield FYAIX might not have bond fund short term redemption fee but the brokerages could still charge the fee.
  2. Use the Total Return of a bond fund instead of bond fund price. This strategy uses ValidFi's APIs which automatically account for the dividend and other distribution reinvesting.
  3. Buy Signal: when the bond fund total return price rises 1.25% from the lowest level that has existed since the most recent sell signal. 
  4. Sell Signal: when the bond fund totoal return price decreases 0.5% from the highest level that has existed since the most buy signal. After selling the fund, keep the proceeds in Cash or some short term bond fund. 

 

 

Similar Strategies in ValiFi:

  1. Market Timing Rule with Short Term Interest Rate: using the short-term interest rates as an indicator 
  2. Market Timing Rule with Maturity Spread: using the spread of long-term and short-term interest rates as an indicator 
  3. SMA Timing Method proposed by Faber: using the SMA of the target asset as an indicator
  4. High Yield Bond Timing Strategy: using  trend  triggers (percentages from recent high or recent low) of the asset price for buy and sell decisions
  5. Market Timing Rule with Long Term Interest Rate: using long-term interest rate as an indicator
  6. Market Timing Rule with Earning to Price Ratio: using the E/P ratio as an indicator
  7. Market Timing Rule with Dividend Yield: using the dividend yield as an indicator
  8. Market Timing Rule with Expected Inflation: using the expected inflation as an indicator
  9. Market Timing rule with Implied Volatility Index : using the implied volatility index  as an indicator  
  10. Market Timing Rule with Bond-Equity Yield Ratio : using the bond-equity yield ratio as an indicator 
  11. Market Timing Rule with Dividend Payout Ratio : using the dividend payout ratio as an indicator 
  12. Market Timing Rule with Credit Spread :  using the credit spread as an indicator
  13. Market Timing Rule with Put/Call Ratio:  using the put/call ratio as an indicator
  14. Learning Market Timing Rule: following the most profitable rule of the above simple market rules in each period 
  15. Voting Market Timing Rule : Switching the position if a certain percentage of the above simple market timing rules intends to do so.

 

See Also

 

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