Fixed Income
Categories
Quick Take
Opportunities in U.S. high-yield credit
Shannon Ward
May 25, 2023
Shannon Ward, fixed income portfolio manager, discusses numerous factors she believes are creating a compelling opportunity in U.S. high-yield bonds.
This transcript is intended to be presented only when accompanied by the video that includes additional important information and disclosures.
Shannon Ward:
So what really gets me excited is when I work with our analysts to find good companies that will last through the cycle.
When clients ask me how I feel about the high-yield asset class and what are the factors that are impacting high yield right now, the first thing that comes to mind and that we talk about is the fact that yields are attractive.
That hasn't been the case for a number of years. The other thing that's, I think, less understood about high yield is just how much higher quality it is now than it has been in many, many years.
The majority of the high-yield issuers are actually BB-rated, and that's not a normal situation for high yield. Usually, we're more majority single B, but right now there's a lot more higher quality high-yield companies for a portfolio manager to choose from when building portfolios. That allows us to put portfolios together that have more resilience in case we're entering a soft patch and have more protection against the thing that we worry about in high yield, which is distress or defaults.
Another factor that we talk about when it comes to the attractiveness of high yield is that we actually are buying at a discount now.
The asset class is trading below par, and when you can buy high-yield companies at a discount, then the return you can expect to earn is coming not just from the coupon income but also from price appreciation as those bonds return to par.
We're focused on companies that don't need to refinance right now, that have done the refinancing work over the course of the last few years when rates were really low. The key for us is to pick companies and build portfolios around issuers that can withstand higher rates, higher costs of labor, rising costs across their income statement but still manage to support the leverage that they have and service the debt. What really gets me excited is when I work with our analysts to find good companies that will last through the cycle.
So those are a number of factors that I think about when I think about the attractiveness of high yield.
Learn more about
Don't miss our latest insights.
More insights from Shannon Ward:
RELATED INSIGHTS
-
Asset Allocation
-
Market Volatility
-
Market Volatility
Don’t miss out
Get the Capital Ideas newsletter in your inbox every other week
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses.
This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
Capital Client Group, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.