Global Perspectives Podcast – High yield: passing the baton from beta to alpha
Adam Hetts talks to Seth Meyer and Tom Ross, portfolio managers on the high yield bond strategies, about how with credit spreads gradually tightening, returns will become less about market direction (beta) and more about identifying individual opportunities (alpha).
- Spreads have taken a round trip, having widened dramatically at the start of the coronavirus crisis but have since narrowed significantly; recovery should squeeze spreads tighter but investors will need to rely more on identifying opportunities through good credit analysis and security selection.
- Effective vaccines should allow economies to reopen and earnings and cash flows to recover and this should accelerate as 2021 progresses, allowing balance sheets to begin to improve.
- Companies in the energy sector may have to run with more conservative balance sheets not just because the oil price may remain low but because the costs of financing are likely to rise as more ESG-led investors refuse to lend to these companies.
- Inflation is a potential concern. While modest inflation is often good for corporate revenues the very low yields on government bonds means inflation may cause volatility in the underlying government bond market that could feed into volatility among corporate bonds.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.