On our October 22nd webinar, Mark Hudoff, portfolio manager of the Hotchkis & Wiley High Yield strategy, discussed the changing high yield environment and its impact on investors. The following recap highlights his views.
Top Takeaways
- U.S. economic growth is positive but facing global headwinds, which means the Fed may defer
tightening
- Deferred tightening would be positive for the high yield market
- Positive economic signs in the U.S. include improved housing market, sufficient liquidity, solid balance sheets, benign default levels, and open credit channels
- Valuations have improved with high yield bond spreads of approximately 500 basis points in mid-October, which is 150 basis points wider than spreads this past summer
- While dealer inventory of corporate bonds has dramatically decreased since 2008, high yield daily trading volume has been relatively stable
- From 2008-2013, high yield bid and ask spreads have compressed, lowering trading costs for investors
- The high yield asset class has matured and the investor base has expanded with foreign investors comprising 15% of total high yield assets
- High yield ETFs comprise only 3-4% of the assets in the high yield market
- Approximately two thirds of the strategy is composed of small cap issuers (those with less than
$1 billion of total debt outstanding)
- We believe turnaround situations and fallen angels that possess improving fundamentals provide substantial opportunity in the current market
Past performance is not a guarantee or reliable indicator of future returns. For general information only and should not be relied on for investment advice. Opinions expressed are subject to change and any forecasts made cannot be guaranteed. Statements on financial market data/trends are based on current market conditions, which may change or fluctuate. Information obtained from independent sources is considered reliable, but H&W cannot guarantee its accuracy or completeness. Investing in high yield securities is subject to certain risks, including market, credit, liquidity, issuer, interest-rate, inflation, and derivatives risks. Lower-rated and non-rated securities involve greater risk than higher-rated securities. Investing in smaller companies involves greater risks than investing in larger companies. High yield bonds and other asset classes have different risk-return profiles, which should be considered when investing. For a complete GIPS Compliant Presentation visit www.hwcm.com. For Investment Advisory clients.Â
Â
