High Yield Bonds versus Equities: A Practical View – January 2012
We believe it is time that investors and investment advisors wake up to the new realities of the world. The notion of equities magically compounding money at double digit rates should have been put to death over the past decade where the S&P 500 has effectively returned nothing. Amazingly hope springs eternal, as both pension accounting and many investment boards and consultants continue to spew the dribble that the next decade will be terrific for equity investors. We see limited growth for equities for the foreseeable future, and most other fixed income alternatives are currently offering very little in the way of yield. Yet the high yield bond market has not only proven to outperform equities (see document for data), but offers a much better yield than both equities and various other fixed income asset classes. We anticipate that investors have a limited window to allocate significant resources to the high yield market and lock in what we see as very attractive yields. We believe that this window will ultimately close as more people recognize the opportunity, which will reduce the yields available.
High Yield: Time for a Real Allocation – October 2011
We have recent been asked first, is the timing right to commit money to the high yield asset class, and, second, how much of a client’s portfolio should be invested in high yield bonds. With the recent spread widening in the high yield market, we feel this space is now offering investors compelling value and history would indicate that spread levels such as we are seeing today provide an exceptionally attractive entry point.
As we look ahead, we see plenty to be concerned about—we are in the midst of a prolonged stagnant economy and Europe is facing mounting issues—however we believe the end result is a resetting of expectations and re-pricing of global equity markets rather than anything economically devastating. Corporate credit remains the port in the current storm for investors and we view an actively managed high yield bond portfolio as offering the best risk/return within this market.
Value Remains – April 2011
The high yield market has had a significant run over the past couple years, no one can deny that, so is there value still to be had in the space? We think so. Based on current spread levels and benign default expectations for the next couple years, further spread compression is not unreasonable. There are still yield opportunities to be had for those that will take the time to scour the market for these values.
High Yield in a Rising Rate Environment – March 2011
Concerns about inflation and rising interest rates abound right now. The traditional thought is that as interest rates rise, bond prices fall. But looking at history, the high yield market has defied this widely held notion; instead, high yield has historically performed well during a rising rate environment. We look at the four main reasons that explain the high yield market’s lack of sensitivity to interest rates.
Investing in Actively Managed ETFs – October 2010
ETFs are one of the fastest growing investment products due to their ease of accessibility and operational tax efficient structure. The benefits to investing in an ETF include access, broad exposure, liquidity, transparency, tax efficiency, and income. Additionally, there are benefits to active management within the ETF space.
Market Commentary: Biggest Head Fake – August 2010
As we have discussed over the last few quarters we believe that equity investors have been involved in the biggest head fake in history. The notion that nothing in the economy has been fixed is now coming to the forefront.
Ratings versus Reality – June 2010
Our belief is that credit is either AAA or D (paying and expected to continue to pay or not paying and in default). So to us this company was in effect AAA, while one of the major rating agencies was telling us that these bonds “are likely in, or very near default.” There continues to remain a massive disconnect among investors about the corporate bond market, the ratings process and risk.