High Yield Fixed Income offers the potential for stable income and total return, while dampening volatility relative to equities and adding absolute yield relative to core bonds. Active management and a focus on downside risk strives to produce stable long-term out-performance. We aim to generate consistent alpha relative to institutional peers, with a longer-term goal of maintaining a top-quartile percentile ranking.
Our Strategy strives to maximize risk-adjusted returns, and seeks superior absolute returns over a market cycle, with lower volatility than the broad market.
First, and foremost, our approach is about risk control. Default risk is the dominant risk factor, and all portfolio investments meet stringent, and quantifiable minimum “margin of safety” requirements. Secondarily, we strive never to buy credit risk at the wrong price.
An optimal, risk-adjusted, portfolio construction combines dynamic fundamental, bottom-up selection, with continuous top-down portfolio risk management.
Investment process summary
Minimum yield screen: with "positive event potential" exceptions
Minimum margin-of safety requirements; quantified and stringently applied
Qualitative fundamental corporate assessments to further safeguard against default risk
Default adjusted methodoloy, focused on the spread premium necessary to overcompensate for estimated default risk
Catalysts for total return, expected to result in total returns above a coupon based yield
Portfolio construction, combines bottom-up credit selection with top-down portfolio risk management
Credit risk control: managed by the dynamic, continuous implementation of the disciplined bottom-up investment process (as described above). Primary credit risks include: Default, Negative Event and ESG risks.
Risk monitoring and review: includes daily portfolio reporting and analysis
Renewed Growth in High Yield Market
• The US High Yield Fixed Income market has recently increased in size, after 6 years of modest decline, in sharp contrast to the very rapid growth of Leveraged Loans and Private Debt markets
• There has been record new issuance year-to-date (August 2020) of relatively high quality bonds, with many secured bond deals
• Much of the additional High Yield market growth due to significant “fallen angels” (downgraded IG bonds)
• All of these trends have led to a 25-year low in HY credits rated B- or lower
Source: BofA Merrill Lynch Global Research, BofA Merrill Lynch Bond Indices, S&P LCD, as of July 31, 2020.
Past performance is not indicative of future performance.
The Inception Date of the FSI High Yield Composites was April 30, 2017. Past Performance is not indicative of future performance. The performance of the BroadHigh Yield Composite is hypothetical, as the assets of the Select High Yield strategy and the Quality High Yield strategy have been combined to create theBroad High Yield strategy. Composite returns do not reflect the deduction of investment advisory fees. A client’s return will be reduced by the investment fees.If a client placed $100,000 under management and a hypothetical gross return of 7% were achieved, the investment assets before fees would have grown to$196,715 in 10 years. However, if an advisory fee of 0.4% were charged, investment assets would have grown to $188,987, or an annual compounded rate of 6.6%. Note: due to rounding percentages may not precisely reflect the absolute figures.
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