Are High Yield ETFs Becoming Too Hot To Handle?

There is no telling how long the rally in credit will last and I’m certainly not going to call a top in absolute terms. Any long-term market participant that has ridden through these credit cycles in the past knows trends can extend much farther than anyone thought possible. However, there is growing reason to be cautious with new money committed at these levels. I would much rather be a buyer on a meaningful pullback than fantasizing that the current trend will extend indefinitely into the future.

For those who continue to hold high yield investments, it’s a great time to evaluate your exposure and consider what changes may be appropriate in light of your risk tolerance. Making incremental changes when markets are calm is far easier than after volatility rears its ugly head. That’s when emotions take over your typically level-headed strategy. Simply moderately reducing large position sizes and adding to cash will allow you to have some dry powder on hand for the next opportunity that comes along.

Bond investors tend to believe they can always be bailed out through the accumulation of income if they simply hold an investment long enough. Nevertheless, just like in the stock market, there are appropriate times to be an enthusiastic buyer and appropriate times to be more careful and thoughtful.

It’s not easy sitting on the sidelines when you want to get in the game, but patience may ultimately be the best course of action for your high-income portfolio.

The post originally appeared on Investorplace.com

Note: This article is written by David Fabian and was originally published on the FMD Capital Management blog. FMD Capital Management is a fee-only investment advisor which provides daily updates on ETFs, portfolio strategies, and market insights. Contact them for a free portfolio review.