Global Defensive High Yield | Investment Strategies | Brandywine GLOBAL

Global Defensive High Yield

At a Glance
  • Benchmark: Bloomberg Barclays Global High Yield Ba/B Index and BofA Merrill Lynch BB-B Global High Yield Index
  • Universe: Global corporate high yield debt, unrated securities deemed to be of comparable quality, and other instruments, including, but not limited to, bank loans, investment grade corporate bonds, sovereign bonds and other government-related obligations, securitized securities, emerging market debt, currencies, and derivatives, such as forwards, futures, and swaps.
  • Focuses on high-quality high yield as an alternative to low-quality, high-risk investments or as a complement to lower-yield core fixed income allocations.
  • Attempts to manage risk and enhance returns by purchasing undervalued securities, avoiding those believed to be overvalued, and diversifying across global credit markets.
Objective
Seeks to generate a high level of income and capital gains while outperforming the benchmark over a complete economic cycle of several years. The strategy focuses on higher-quality high yield investments, typically rated BB/B by an NRSRO, providing the potential for attractive returns while avoiding the volatility, liquidity, and default risks associated with low-quality, high-risk alternatives.
Investment Process
Our approach combines macroeconomic, country, and currency perspectives with quantitative screens and fundamental analysis to determine sector allocation and issue selection, and to attempt to more appropriately add alpha over the long run and minimize downside surprises.

Macroeconomic Themes

Top-down macroeconomic themes inform overall sector, duration, and currency positioning, and use of market hedging strategies.

Quantitative Screens

Proprietary quantitative screens identify sectors and issuers that offer greater yield and total return potential with lower risk. Our screens consider many factors, including sector economics and risks, yield and option-adjusted spread analysis, and the probability of credit default or coercive restructuring.

Fundamental Analysis

Fundamental research, critical to constructing a portfolio that meets its objectives, is used to determine a company’s long-term ability to support attractive yields and total return.
Market Hedges
Derivatives, such as credit default swaps, interest rate futures, and options, are employed to manage risk, including managing volatility and preserving capital in challenging environments or enhancing credit exposure and broadening income opportunities in favorable conditions.
Buy/Sell Discipline
A security is reviewed for purchase once quantitative screens and fundamental assessments indicate the security is cheap given the stage of the business cycle while also taking into account its credit quality and sector allocation. A security 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.