View from the Observation Deck

1. The midpoint of 2007 was just before the beginning of the subprime mortgage meltdown and six months before the start of the recession.
2. Throw in the financial crisis of 2008 and investors could have easily made a compelling argument for mitigating risk in their investment portfolios. And many did.
3. Those investors that gravitated towards investment-grade debt, however, actually underperformed the riskier debt groups.
4. The 5-year annualized returns for the two top groups in the chart were as follows: U.S. Corporate High Yield (8.45%) and Global Emerging Markets (8.34%).
5. All of the other debt groups posted annualized returns between 5.67% and 7.14%, so they also generated respectable returns.
6. The main point of our post today is for investors to notice the huge decline in the yields on the investment-grade debt groups in the past five years.
7. Riskier debt securities not only outperformed investment-grade debt over the past five years, but managed to do so while reasonably preserving yield in the process.