Global High Yield
At a Glance
- Primary Benchmark: Bloomberg Global Unhedged High Yield Index or other high yield benchmark, as specified by client direction
- Portfolio construction combines the Global Fixed Income team macroeconomic and currency strategy with the quantitative and fundamental sector and security selection analysis of the High Yield team
- Yield, option-adjusted spread, and expected total return adjusted for default probability are our primary measures of value
- Investments typically are concentrated in sectors and individual issuers that we believe offer the best total return potential
- Portfolios normally consist of 50 to 100 corporate domestic and foreign issuers with position sizes limited to 5% at purchase, excluding issues of the U.S. Government
We strive to provide an attractive total return by seeking to generate a high level of global income and modest capital gains, while attempting to protect against inflation. Over a complete economic cycle of several years, we seek to outperform the global high yield benchmark, on an average annual basis, by more than one percentage point net of fees.
Global high yield corporate debt issuers generally rated below BBB- or Baa3 by at least one rating agency. On occasion, the fund will invest in unrated securities deemed to be of comparable quality. We may also invest, to limited degrees and dependent on client guidelines, in investment-grade corporate bonds, emerging market debt, preferred stock, and convertible securities.
Investment Process Summary
We apply our top-down global fixed income process when structuring global high yield portfolios. The top-down process establishes the cyclical quality bias of the portfolio. This macroeconomic and currency perspective is combined and incorporated with our quantitative screens and fundamental analysis when constructing global high yield portfolios. The cheapness of individual sectors and issuers is determined using these quantitative and qualitative credit tools. The subsequent portfolio will generally consist of 50 to 100 global high yield corporate bonds that we believe to be undervalued by the credit markets.
Based on our proprietary quantitative deselection screen, we aim to identify those sectors and issuers that offer greater yield and return than the index with lower comparable risk. Our quantitative deselection screen identifies those sectors and issuers based on a number of factors including (i) sector economics and risks; (ii) yield and option-adjusted spread analysis; and (iii) the probability of credit default or coercive restructuring.
We believe that fundamental research is critical to constructing a portfolio that will outperform its representative index. We focus on identifying those issuers based on their future ability to provide a better than index yield and total return. We analyze the (i) quality of a company’s earnings in relation to management's goals and risk tolerance, (ii) specific issuer bond covenants, (iii) position of an issue within the capital structure, and (iv) value and range of a firm’s assets across the respective capital structure.
We follow a disciplined approach to sell decisions, with issues sold for two primary reasons—valuation and fundamental deterioration. An issue is typically sold as it approaches our yield target and/or another more compelling investment opportunity arises. Alternatively, an issue may also be sold when the initial thesis supporting the investment is no longer valid, and we believe significant downside is likely.