Top picks 2012: SPDR Barclay's Capital High Yield Bond ETF

This bond fund acts like a large-cap stock in bull markets and a defensive stock when times are tough.

By TheStockAdvisors Jan 12, 2012 11:35AM
Image: Stock market (© Digital Vision/SuperStock)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012.

By Rick Pendergraft, ETF Master Portfolio

Given the current global economic uncertainty, I don't expect big things from the equity markets in 2012. With that in mind, my pick for 2012 is the SPDR Barclay's Capital High Yield Bond ETF (JNK).

I like JNK for several reasons. First is the yield of almost 8%. If the market continues to be choppy, a nice yield helps to balance things out and calm the nerves.

The second reason I like the exchange-traded fund (ETF) is that it behaves more like a stock. During the first year of the recovery from the March 2009 bottom, the fund moved in lockstep with the S&P 500, with a gain of 73.5%. Meanwhile, during the downturn from October 2007 through that March 2009 bottom, JNK was down 13% less than the S&P. It seems that during a bull market JNK acts like a large-cap stock, but during a bear market it acts more like a defensive stock such as a utility.

Yet another reason for recommending this fund is the current fixed income market. Right now we are seeing governments all over the world struggle with deficits. Meanwhile, many corporations are sitting on large stockpiles of cash -- more than most governments. As a result, corporate bonds are less risky than government bonds.

When you compare the yield of the SPDR Barclay's Capital High Yield Bond ETF to the 3.17% yield on 30-year Treasury Bonds, there really isn't much of a choice to make.

I would not recommend buying individual junk bonds to most investors, but when you have the safety of numbers it certainly makes it less risky. In all, there are 226 holdings in the SPDR Barclay’s Capital High Yield Bond ETF.

I look for JNK to move up approximately 15% to 20% in the coming year. Even if I am wrong about the overall market, you still have the huge yield. If the market unexpectedly soars in 2012, JNK should soar right along with it.

See all 50+ stocks in our Top Picks 2012 Report.

Steven Halpern's​​ offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
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