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High-Yield Bond Funds: A Growing Crisis of Concern

As reported by The Wall Street Journal on December 15, 2015 (“Investors Abandon Risky Funds”), the U.S. High-Yield bond rout has deepened this week, with the bonds of dozens of low-rated companies falling anew and the shares of some large fund-management firms tumbling as well.

Investors retreated from the U.S. junk-bond market for the third straight trading day and stocks of large asset managers were hit by heavy selling, a sign that the deepest turmoil in financial markets since summer is intensifying. Some investors reported difficulties selling lower-rated bonds quickly or at listed prices, though others said the market appeared to stabilize somewhat after the record plunge in prices on Friday.

While the market for the highest-quality bonds remains intact, there are signs across Wall Street that investors are losing confidence in lower-quality bonds and the firms that most actively deal in them.

Waddell & Reed Financial Inc., which manages the $6.2 billion Ivy High Income Fund, has suffered the largest outflows this year of any junk-bond fund. According to Morningstar, investors withdrew $1.8 billion from the fund this year through November, the highest level of any high-yield bond fund during that period. The Ivy High Income Fund is among the worst high-yield performers this year, according to Morningstar. The fund is down 6.4% this year through last Friday.

AllianceBernstein Holding LP, which runs the $5.8 billion AB High Income Advisor fund, dropped 7% and Affiliated Managers Group Inc., a major investor in Third Avenue Management LLC, which last week suspended withdrawals at its junk-bond fund, dropped 5.7%.

If you are an individual or institutional investor who has any concerns about your investment in high-yield bond funds, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

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