Top picks 2012: SPDR High Yield Bond

As we enter 2012, there are so many questions and doubts lingering over the global equity markets. The European debt crisis is far from being resolved and the U.S. still has its own lingering debt problems.

Given the current state of uncertainty, I don�t expect big things from the equity markets in 2012. With that in mind, my pick for 2012 is the SPDR Barclay�s Capital High Yield Bond Fund (JNK).

I like JNK for several reasons. First is the yield of almost 8%. If the market continues to be as choppy as it has been during the third and fourth quarters of 2011, a nice yield helps to balance things out and calm the nerves.

The second reason I like the fund is that it behaves more like a stock. During the first year of the recovery from the March 2009 bottom, the fund moved in lockstep with the S&P 500 with a gain of 73.5%.
Meanwhile, during the downturn from October 2007 through that March 2009 bottom, the JNK was down 13% less than the S&P. It seems that during a bull market the JNK acts like a large-cap stock, but during a bear market it acts more like a defensive stock such as a utility.

Yet another reason for recommending the fund is the current fixed income market. Right now we are seeing governments all over the world struggle with deficits.

We have the obvious debt-ridden countries like Greece, Italy, Spain and Portugal. But there are also issues here in the United States, as evidenced by the record debt levels and the political bickering over how to fix the problem.

Governments have been operating with budget deficits for decades, and the pattern has got to stop.

Meanwhile, many corporations are sitting on large stockpiles of cash � more than most governments.

As a result, corporate bonds are less risky than government bonds. When you compare the 8.55% yield of the SPDR Barclay�s Capital High Yield Bond Fund to the 3.17% yield on 30-year Treasury Bonds, there really isn�t much of a choice to make.

I would not recommend buying individual junk bonds to most investors, but when you have the safety of numbers it certainly makes it less risky. In all, there are 226 holdings in the JNK.

I look for the SPDR Barclay�s Capital High Yield Bond Fund to move up approximately 15-20% in the coming year.

Even if I am wrong about the overall market, you still have the huge yield on the JNK. If the market unexpectedly soars in 2012, the JNK should soar right along with it.