High-yield fixed income remains on the plates of institutional asset owners despite the recent shuttering of two high-yield mutual funds that capped a difficult year for the asset class.
In fact, some think this might be the time to feast on high yield.
“The opportunity is great given the mess caused by retail investors,” said David Holmgren, chief investment officer, Hartford HealthCare, Hartford, Conn., with $3 billion in pension and other assets. “Those investors were looking for return that they couldn't get in their (certificates of deposit) or bank accounts. They went after too much yield. But for us, we've got more opportunity now in high yield as a result of what's gone on of late.”
Added David Long, senior vice president and chief investment officer, asset-liability modeling and derivatives and fixed income, at the C$60.8 billion ($44.2 billion) Healthcare of Ontario Pension Plan, Toronto: “As a long-term investor, any time assets fall off so markedly, you take a second look. High yield has been underperforming. You could argue that the risk premium has gone up in the sell-off. But if you're more of a trader, then it looks like a bear market, doesn't it? It's a better time to buy than a month ago or a year ago. This might mean it's the right time to buy.”
As is, 2015 — and particularly the first two weeks of December — won't be remembered as boom time for high-yield debt in terms of returns. The Barclays Capital U.S. Corporate High Yield index was -5.05% year-to-date Dec. 15 and -3.1% for the first 11 trading days of December. In contrast, the Barclays Capital U.S. Aggregate Bond index is up 0.52% year-to-date and down 0.35% for the month, both through Dec. 15.