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.
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.