Institutional investors continue to turn toward high yield for its potential to offer attractive risk-adjusted returns in a continued slow-growth, low-rate environment. However, not all investors understand the full depth and breadth of opportunity in the global high-yield market, which has experienced tremendous growth and evolution since the 2008 financial crisis.
From a relatively one-dimensional asset class defined primarily by subinvestment-grade U.S. corporate bonds, the global high-yield universe today is a more than $3 trillion market, as calculated by Credit Suisse, which includes more than 3,000 issuers across four core subclasses: corporate bonds and loans issued by companies in the U.S. and Europe.
While many investors continue to bring a compartmentalized, single-asset mindset to investing in high yield — for example, hiring one manager for U.S. bonds, another for loans and another for European bonds — we see potential benefits to considering a multicredit approach. This approach gives investors' high-yield allocation more flexibility, improving the ability to capitalize on opportunities across the global high-yield markets as they appear throughout the credit cycle.
In addition to the potential for attractive yields in a low-rate environment, a multicredit approach to investing can offer the following benefits:
- Diversification within a single portfolio across high-yield assets — including corporate loans and bonds, collateralized loan obligations and distressed credit — and geographic regions;
- A single point of access to global corporate credit beta;
- Flexibility to move among asset classes and regions;
- Ability to respond in real time to short-term relative value opportunities that arise on the back of technical factors such as geopolitical events and fund flows;
- Reduced governance and the placement of tactical allocations into the hands of one high-yield manager; and
- Opportunities to dampen portfolio volatility.