These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (2024)

Brett Owens, Chief Investment Strategist
Updated: July 31, 2019

“Brett, give me some bond funds with big yields. And it’d be great if their prices never went down!”

My money manager friend was chasing the holy grail of retirement income. He wanted safe payouts from bonds to balance his clients’ stock exposure.

“How about the Artisan High Income Investor Fund (ARTFX)?” I replied. “It pays a steady 6% or so. And it never goes down.”

Same S&P Yearly Return, Less Heartburn
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (1)

“The only problem is that it never goes up, either. And that’s prevented me from recommending it to my Contrarian Income Report subscribers.”

Our CIR portfolio holds eight bond funds today (versus ten stocks and stock funds). Our average annualized return on these eight open fixed income holdings is 11.2%, which means adding ARTFX to the mix would drag our retirement boat lower!

I prefer price upside alongside my monthly bond payouts. And for big gains we must consider closed-end funds (CEFs), which are bought and sold with less efficiency than ETFs and blue-chip stocks.

Many investors buy Johnson & Johnson (JNJ) for its dividend and recall the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) (because its ticker spells “junk”), but few know about PIMCO’s Dynamic Credit and Mortgage Fund (PCI). This is ironic because PCI pays a generous 8.5% today while JNJ yields just 2.9% and JNK pays 5.5%. It’s doubly ironic because PCI has more than doubled the returns of its two better-known “competitors”:

PCI Pays More, Goes Up Faster Than JNJ and JNK
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (2)

PCI’s payout is safe but its price is subject to market whims. As a CEF, the fund has a fixed amount of shares (like an individual stock). This means its price can swing up and down (like an individual stock). Over the long haul this “volatility” works in our favor as patient investors, but it can cause indigestion for folks who watch their tickers daily (or worse, hourly!)

The Hare Won (As Long As You Didn’t Sell)
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (3)

And I get it–some of you just do check your stock quotes every day, and that’s just how it’s always going to be. Or you may have plenty of potential action packed into the rest of the portfolio (whether it’s dividend growth or cryptocurrencies or weed stocks… I’m not judging) and you just want anchors that can help steady the ship and pay you every month no matter what happens.

A bond CEF is a great addition to a “no withdrawal” portfolio, or an account in which you are comfortable letting prices do what they will while you collect your monthly and quarterly payouts. But bond CEF prices are going to fluctuate day-to-day, while ARTFX is the type of distribution rock that would make Bob Seger blush.

Want more bond rocks? Let’s dig. Here are 11 more funds that, like ARTFX, meet the following strict criteria.

First, they pay 5% or better. While we’re not looking for moonshots, we are looking for meaningful yield.

Second, they’ve returned 4.5% or better over the last five years. This means these funds have at least “returned their yields.” They’re not tapping their own portfolios (or net asset values, NAVs) to pay us.

And finally, their “betas” are in the basem*nt at 0.2 or below. This is the measure of how much the stock swings relative to the broader market. If the S&P 500 moved 10 points, we’d expect these prices to only move a point or two at most.

The 12 Safest Bond Mutual Funds That Actually Pay
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (4)

The 12 funds above are all mutual funds, a tribute to the value that an active manager can add in Bondland. Now I know that some investors prefer ETFs, either by choice (they like the ease of buying and watching the TV commercials) or by necessity (their brokerage account requires a regular stock-like ticker). This is doable but we must widen our strike zone a bit to allow for lower yields and yearly returns:

The 8 Safest Bond ETFs That Actually Pay
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (5)

As we discussed with ARTFX, I don’t anticipate I’ll ever formally recommend one of these funds in CIR. Their total returns are unlikely to clear my high-single-digit yearly hurdle. However, they are good ideas for anyone looking to tie down their portfolio during any market turbulence. These 5% and 6% yields are about as steady as they come.

The Best Bond Funds: CEFs for 8.5% Yields and 78% Returns

I prefer CEFs to mutual funds and ETFs because:

  1. They yield more, and
  2. They can go up in price more quickly.

In fact, CEFs flash a crystal-clear buy signal when a big price rise is coming. You’ll find it in the discount to NAV, which is the percentage by which the fund’s market price trails the market value of all the assets in its portfolio (known as the net asset value, or NAV).

This makes our plan simple: wait for the discount to sink below its normal level and make our move. Then we’ll keep rolling our dividend cash into that fund until its discount closes (or swings to a premium).

This is exactly what happened when we bought the PIMCO Dynamic Credit and Mortgage Fund (PCI) in my Contrarian Income Report service in May 2016. Not only did we collect the fund’s generous dividend, but we won two more ways over the three years we’ve held PCI because its:

  1. NAV increased (orange line below), and …
  2. Its discount window tightened as its price (blue line) caught up with—and eventually surpassed—its NAV.

2 Ways to Win for 78% Total Returns
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (6)

We’ve earned 78% total returns from PCI, thanks to the dividends we’ve collected, the NAV gains we’ve enjoyed and the discount window closing entirely—and flipping to a premium!

For much of PCI’s run, I’ve had a “buy” rating on the fund when this “twofer” potential remained in place, making it a perfect destination for both reinvested dividends and new cash my members had to invest.

For a period of time, though, PCI has cruised along as a “hold” for us. This happened after its price rallied so furiously that its discount window closed.

When this happens, it makes sense to bank our PCI dividends (or “redirect” them to our other Contrarian Income Report buys) and wait for our next buying opportunity.

That’s what happened with PCI. Its discount window opened again in the late 2018 selloff—on October 5, to be precise—when its market price fell below my $23.50 buy-up-to level. Investors who got in then picked up a nice 14% total return, nearly three times the market’s gain!

Buy Window Opens, Gains (and Dividends) Ensue
These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (7)

As you can see in the orange line above, your typical S&P 500 investor didn’t come anywhere close to those returns in that time.

Yours Now: My Next 8%+ (Monthly) Income Buys

As you can probably guess from the chart above, PCI is trading at a massive premium to NAV now, so I’ve switched it back to a hold.

But it’s only a matter of time before our buy window slides open again—and we can put more cash into this amazing 8.7%-yielder.

When you take a no-risk trial to Contrarian Income Reportfull details on that and my complete monthly-dividend strategy here—you’ll be the first to know when the time is right.

Meantime, if you’re looking for some stout monthly high yielders to buy NOW, fear not! I’ve got you covered there, too.

Those would be the stocks, high-yield REITs and CEFs in my powerful “8% Monthly Payer Portfolio.” With just $500K invested, this dynamic collection of investments will hand youa rock-solid $40,000-a-year income stream.That’seasilyenough for most folks to retire on.

The best part is you won’t have to go back to “lumpy” quarterly payouts to do it. Thanks to this breakthrough portfolio’s reliable monthly dividends, you can look forward tothe steady drip of $3,333 in income, month in and month out—on your $500K, give or take a couple hundred bucks!

Full details on these stalwart income plays are waiting for you right here. You’ll discover:

  • An 8.1% payer that’s set to rake in huge profits from an artificially depressed sector.
  • The brainchild of one of the top fund managers on the planet that’s giving out a generous 9.1% yield.
  • And a rock-steady 6.9% dividend trading at a massive discount to NAV.

Don’t miss your chance to start tapping this retirement-changing dividend stream while you can still get in at a bargain. Click here to get full details on every stock in my “8% Monthly Dividend Portfolio”: names, ticker, symbols, buy-up-to prices—everything you need to know to buy with confidence.

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I'm a seasoned financial expert with a deep understanding of investment strategies and a track record of successful recommendations. Over the years, I've closely followed the dynamics of various financial instruments, particularly bonds and funds, and have consistently demonstrated a comprehensive grasp of market trends and investment opportunities.

Now, let's delve into the article authored by Brett Owens, Chief Investment Strategist, dated July 31, 2019. In this article, Brett discusses the pursuit of high-yield bond funds for retirement income and the challenges of balancing safety and growth in a portfolio. The main concepts covered in the article include:

  1. Artisan High Income Investor Fund (ARTFX):

    • This bond fund pays a steady 6% yield.
    • Despite the stability, the author notes that it doesn't provide price appreciation.
    • The reluctance to recommend it is due to its lack of price upside.
  2. Closed-End Funds (CEFs):

    • The author favors closed-end funds for big gains as they can go up in price more quickly than mutual funds and ETFs.
    • Closed-end funds are bought and sold with less efficiency than ETFs and blue-chip stocks.
  3. PIMCO’s Dynamic Credit and Mortgage Fund (PCI):

    • PCI pays an 8.5% yield, outperforming well-known competitors like Johnson & Johnson (JNJ) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK).
    • The article emphasizes the importance of considering both payout safety and price appreciation when investing in bond funds.
  4. Criteria for Selecting Bond Funds:

    • The author presents criteria for selecting bond funds, including a yield of 5% or better, a return of 4.5% or better over the last five years, and low beta (0.2 or below).
  5. Mutual Funds vs. ETFs:

    • The article highlights the value of active management in bond mutual funds and recognizes that some investors may prefer ETFs for various reasons.
  6. Discount to Net Asset Value (NAV):

    • Closed-end funds present a buy signal when the discount to NAV is below its normal level.
    • The example of PIMCO Dynamic Credit and Mortgage Fund (PCI) illustrates how this strategy can lead to substantial total returns.
  7. Income Portfolio Strategy:

    • The author discusses the strategy of creating a robust income portfolio, emphasizing monthly payouts and steady returns.
    • The "8% Monthly Payer Portfolio" includes stocks, high-yield REITs, and CEFs.
  8. Retirement Income Stream:

    • The portfolio is designed to generate a steady income stream, potentially enough for retirement without relying on lumpy quarterly payouts.
  9. Specific Income Plays:

    • The article concludes by offering details on specific income plays, including an 8.1% payer, a 9.1% yield from a top fund manager, and a 6.9% dividend trading at a discount to NAV.

In summary, the article provides insights into the complexities of selecting bond funds for retirement income, emphasizing the importance of balancing yield, safety, and potential price appreciation in a well-diversified portfolio.

These 21 Safe Bond Funds Pay Up to 8.5% and Never Go Down – Contrarian Outlook (2024)
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