High yield has shined. Most high-yield managers haven’t
Why a different approach to beating the benchmark may be needed.
- The U.S. high-yield bond market has provided an attractive return, but most high-yield managers have trailed the asset class benchmark, partly due to high transaction costs—especially for lower-rated high-yield securities.
- Reducing exposure to lower-rated high-yield bonds and replacing it with limited equities exposure has provided better returns over time while taking on comparatively less risk.
- Since the end of the Global Financial Crisis, stocks have tended to outperform high-yield bonds—even when lower-rated high-yield bonds have performed well.
- Therefore, one potential solution to topping the high-yield index is a total return approach that includes adding some equities in the mix.
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