CNBC Stock Blog

Junk Bonds are Overbought—Look Here Instead: Strategist

Many investors see junk bonds as the way to go, but are the high yields worth the risk now? Thomas Karsten, president and chief investment officer of Karsten Financial, told investors where they should put their money.

Spotlight on Master Limited Partnerships

“We have not really favored junk bonds and we’re looking at other areas for our clients who are individuals, who are retirees or who are looking to retire in the near future, and most of these people are trying to create a portfolio with steady income streams,” Karsten told CNBC.

Karsten said for the risk investors undertake in junk bonds, it is better to invest in Master Limited Partnerships (MLPs), which he says will produce a more consistent income stream.

“[MLPs are] limited partnerships at their core, but they trade on the exchanges and give you much better liquidity and marketability,” he said.

“Because of their tax structure, most of these companies are in the oil and gas space, but they are in a more conservative space there because they are pipeline companies—so they are primarily involved with the transpiration and the storage.”

“So their revenue stream is really driven by volume coming in and it gives them somewhat of a cushion from the price volatility that you’d typically see in the energy market," he added. "So we’re using that as a big piece of our portfolios, along with energy."

  • Watch Karsten' Previous Appearance on CNBC (Nov. 2, 2009)

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No immediate information was available for Karsten or his firm.