High-yield strategies continued to lead the top fixed-income strategies for the year ended Sept. 30, according to Morningstar Inc.'s separate account/collective investment trust database, though their dominance of late was reduced somewhat.
Five of the top 10 strategies in the separate account universe were high-yield bonds, compared to seven of the top 10 three months prior. And while the median returns for the quarter and the year ended Sept. 30 for all fixed-income separate accounts in the Morningstar database were 3.02% and 9.5%, respectively, they lagged behind returns from three months earlier, at 3.27% for the quarter and 13.26% for the year ended June 30.
The Barclays Capital U.S. Government/Credit index returned 8.73%, and the Credit Suisse High Yield index returned 10.93% for the year ended Sept. 30.
Adam Baranowski, a data analyst with Morningstar Inc., Chicago, said in a telephone interview that the latest numbers may not show how well high-yield fixed-income strategies have performed. They have done very well for the last four consecutive quarters, particularly in the second and third quarters of 2009 — and only the third quarter 2009 is reflected in the latest one-year performance numbers.
“I want to make sure people understand that (high-yield strategies) dropped a bit but had a better third quarter than second quarter in 2010,” Mr. Baranowski said. “It looks like they are dropping, but actually it's been a very good quarter.”
The Credit Suisse High Yield index returned 5.96% for the third quarter of 2010.
Brookfield Investment Management Inc.'s CMBS Composite strategy was the top performing strategy for the second quarter in a row, with a one-year gross return of 64.64%. The strategy returned 81.36% for the year ended June 30 and had a one-year gross return of 22.95% in the third quarter of 2009.
In the past year there has been a “significant recovery for CMBS, which was extremely undervalued 12 to 18 months ago,” Michelle Russell-Dowe, New York-based managing director and head of structured products for Brookfield, wrote in an e-mail response to questions.
“The steps to the recovery of CMBS have been accelerated, through the additional demand brought to the sector by the Public-Private Investment Program, and the return of leverage through financing,” she wrote. “Both had a significant impact on prices in the senior portion of the capital structure. Slow improvement in lending and improved expectations in commercial real estate has also helped lift valuations from an overly punitive level present more than a year ago.”
She noted that Brookfield's CMBS Composite strategy emphasizes “highly opportunistic securities within CMBS, capitalizing on Brookfield's real estate experience.”