Opening Statement from the December 2015 Dividend Gems

Opening Statement from the December 2015 Dividend Gems

Originally published on December 20, 2015

As expected, on December 16, 2015 the Federal Reserve raised short-term interest rates by 25 bp. We have been discussing our forecast of a December 2015 rate hike for more than one year in the Intelligent Investor and Market Forecaster, although we have also mentioned this forecast in Dividend Gems.

The rate hike serves more as a symbolic gesture for the Fed since it was the first time rates had been increased in nearly a decade. It is more important to understand the pace by which interest rates will be raised in coming years. This is especially important for investors in dividend-bearing securities. 

During the first half of December, high-yield debt markets faced a severe selloff largely due to liquidity concerns. We believe these concerns were overblown and did not reflect the relative risks within the various types of high-yield debt and high-yield debt funds that could potentially be affected. Instead the entire high-yield debt market was punished, as were all high-yield funds, corporate, sovereign, open-ended, closed-ended, and finally the ETFs. 

This exaggerated selloff in high-yield debt markets presented a nice buying (or at least trading) opportunity for many of these funds. In fact, this selloff is precisely what we have been advising investors to wait for as a buying opportunity since two of the bond funds we cover in this publication have been in a bearish trend for quite some time (see June 2015 Dividend Gems, pp. 31-2 for analysis and guidance on...