PA ANALYSIS: How to protect yourself in high yield

Added 13th April 2016

Just as high-yield is gaining momentum as the investment choice of 2016, so commentators are already talking up a bubble in the asset class.

PA ANALYSIS: How to protect yourself in high yield

As widely reported this week, both UBS and Moody’s have expressed doubts about the investment case for high yield, with the later suggesting the default rate will surpass its long-term average in the coming months of Q2.

So is it time to adopt a more restrained approach to investing in the asset class? Certainly, from a fund perspective the growing list of credit strategies available to the retail market makes this very achievable.

Whitechurch Securities is currently using AXA US Short Duration High Yield Bond and Royal London Short Duration Global High Yield funds for its exposure, the latter yielding at around 5.9%.

“There are still a lot of economic headwinds in the US which could see high yield come under pressure, therefore we prefer the more cautious end of that space,” says managing director Gavin Haynes.  

“When there’s a flight to quality in high yield, we tend to prefer short-dated corporate bonds where the default risks are less”.

"Wealth managers have more freedom than ever to exploit opportunities across the credit spectrum"

Another way to access high yield is through strategic bond funds, with Haynes picking out Jupiter Strategic Bond as a core holding.

With manager Ariel Bezalel adopting a barbell approach, this fund has around 50% of its assets currently in high yield, though also holds approximately 30% of its assets in much higher-quality AAA-rated credit.

Weightings to high yield can differ greatly across different offerings. For example, Hermes Multi Strategy Credit has two-thirds of its allocation to the asset class, versus one-third in investment grade.

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Gary Shepherd


Portfolio Adviser

Gary joined Last Word Media in 2009, becoming editor of Portfolio Adviser a year later. Previously, he worked at Incisive Media with roles across its Professional Adviser, Investment Week, Bloomberg Money and Mortgage Solutions titles. Gary has been shortlisted for various awards, winning Headline Money Investment Writer of the Year in 2010.



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