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January 04, 2005 at 07:00 PM
Jan. 3, 2005 — Investors in high-yield corporate bond funds were able to enjoy their New Year’s Eve celebrations, but they may be in for a mild hangover at the end of 2005.
Junk bond mutual funds returned 3.8% on average in the fourth quarter of 2004, and 9.2% for the full year, preliminary data from Standard & Poor’s showed. But gains in 2005 are likely to be slimmer, money managers and others said.
“We’re not looking for anywhere near as good a year in 2005 as we enjoyed in 2004,” said Mark Vaselkiv, who runs the T Rowe Price High Yield Fund (PRHYX). Vaselkiv said he sees full-year returns in the “low single digit” range, “because we think the market’s just got to give back some of the gains it’s enjoyed over the last two years.”
Other fund managers forecast full-year returns, a product of bond prices and interest paid, of 4%-6%.
“I’ll take the coupon and back it off a little bit,” said Peter Ehret, who helps oversee the AIM High Yield Fund/A (AMHYX).
David Wyss, chief economist for Standard & Poor’s, had a more pessimistic outlook for the sector, however.
“My suspicion is that they’ll wind up in negative territory, but probably not by much,” he said of returns through the first half of the year. As for the full year, he expects them to be “close to zero.”
