High Yield Bonds A Primer

Size: px
Start display at page:

Download "High Yield Bonds A Primer"

Transcription

1 High Yield Bonds A Primer With our extensive history in the Canadian credit market dating back to the Income Trust period, our portfolio managers believe that there is considerable merit in including select Canadian high yield investments within a wellconstructed portfolio. Our investment thesis is based on a number of factors, including the following: Because of its infancy, the Canadian high yield market displays significant pricing inefficiencies due to the limited credit history of issuers; Credit rating agencies have a short history of assessing credit risk on Canadian corporations and this is reflected in the relatively lower credit ratings that they apply to new issuers; Strong covenants in the Canadian high yield market may provide significant protection to investors against deterioration in serviceability and potential default; With their high position within the corporate capital structure, i.e., high yield bonds sit ahead of converts, preferreds and common equity holders, if you are willing to hold an equity position, why not hold the high yield debt? In the current market environment, high yield debt still appears fairly priced relative to investment grade and sovereign debt; Finally, the Canadian high yield market has matured significantly since the late 2000s with increased issuance and institutional investment appetite, resulting in a deeper secondary market, which satisfies our test of liquidity and complies with our disciplined selling strategies. Until 2009, corporate and investor experience in the high yield space was generally restricted to the USA where a deep and liquid market had developed for non-investment grade securities. In Canada, there was little demand for

2 corporate high yield paper as government securities continued to carry relatively attractive yields and there were other yielding assets that satisfied demand. But two events changed the Canadian landscape the removal of favoured tax status for Canadian Income Trusts in 2006 and the collapse of Lehman Brothers Inc. ( Lehman ) in While legislative changes for Income Trusts created an investor void of high yield, the collapse of Lehman precipitated a credit crisis which resulted in reduced corporate lending from the banks and forced corporations to look elsewhere for reliable credit sources. Today the market in Canada has grown with a total issuance of over $13 billion across 44 different corporations and 58 individual issues. In addition to growing Source: TD Bank supply, demand drivers have also matured with over 200 institutional investors running high yield strategies that have all but absorbed new supply. Flow data supports the case for high yield investing with data showing a steady liquidation of equity and money market investments, in favour of balanced, fixed income and high yield mandates. Source: Scotia Capital Source: Scotia Capital

3 Features of High Yield Bonds In general, high yield bonds are defined in Canada as corporate issues which carry a credit rating below BBB (Moody s) or do not carry a rating at all. But while the credit rating may determine its relative risk profile compared to other fixed income instruments, it is important from an investment perspective to understand where these types of instruments fit within the corporate structure. Canadian high yield bonds reside at the top of the corporate capital structure and usually have a senior unsecured or secondary lien claim on assets. Source: Bank of Montreal Source: Scotiabank

4 Unlike equity investments, high yield bonds carry relatively restrictive covenants that help protect holders in the event of bankruptcy providing priority over assets to pay bondholders in advance of certain other stakeholders. And interestingly, covenant protection generally gets tighter the lower the credit rating. Finally, according to Moody s, covenants with Canadian issuers are generally considered to be stronger than those in the USA. 1 From a pricing perspective, the relative infancy of the Canadian high yield market has also resulted in some mispricing of credits relative to similar issues in the U.S. market. This has in general resulted in higher coupons and tighter covenants than might otherwise be the case. Given the limited credit experience that issuers in Canada have experienced, credit agencies are reluctant to provide higher credit ratings until such time as a credit history has been established. As a result, Canadian issuers find themselves with generally lower credit ratings for their first issue with the expectation that credit ratings will improve as credit history develops. Due to these structural issues, Canadian investors may capture materially higher coupons relative to the credit risk assumed. As the market develops, greater pricing efficiency is expected to result in lower spreads and higher credit ratings among experienced issuers. Canadian High Yield Spreads vs. US High Yield Spreads As of November 20 th, 2012 Source: Bloomberg Finance L.P. 1 Canadian High Yield Bonds Offer More Investor Protection Than US Bonds, Moody s Investor Service. September 10 th, 2012

5 Secondary Market Characteristics In addition to their high coupon, high yield bonds also exhibit other characteristics which make them a compelling investment within a well diversified portfolio. Because of the higher coupons associated with high yield bonds, they carry lower interest rate risk compared to sovereign and investment grade issues with the same maturities. 2 Consequently, high yield investments may have better risk/return characteristics as prices are less volatile relative to returns. Source Scotiabank And where fixed income portfolios may underperform in a rising interest rate environment, high yield bonds will generally outperform. Why? Because higher interest rates generally mean improving economic conditions, this translates into better operating environments for corporate issuers. If company profitability is 2 Duration is the common metric used to measure a bond s price sensitivity to interest rate risk. Simply put, the higher the coupon, the lower the duration of a bond and therefore the lower it s correlation to changes in interest rates.

6 improving, then credit spreads will tighten and high yield bond prices will rise. Thus making high yield investments a compelling fixed-income investment in an environment where interest rates will eventually start to rise. Barometer Security Selection For Barometer, we look at the high yield bond market as essentially being divided into three camps: i) bond issuers who were once investment grade and have fallen into the high yield camp as a result of deterioration in their balance sheet and overall credit quality; ii), issuers who are new to the market and start as high yield issuers with expectations that they will evolve into investment grade credits over time; and iii) issues which are fairly priced and which will likely remain noninvestment grade. In keeping with the Barometer investment approach, we focus on the second camp of strong corporate issuers who have constructive balance sheets and strong cash-flow projections. In addition to a number of these and several other quantitative factors, our portfolio managers spend considerable time understanding qualitative issues like the quality of assets (and their subsequent ability to generate cash flow), management expertise, the cyclicality of the business and barriers to entry. High yield bonds constitute only a portion of our overall asset allocation today, and because we are a tactical manager, we pick and choose only those issues which we feel would be constructive to our portfolios. When conditions are no longer supportive for a particular issue or the asset class in general, we seek to invest elsewhere. Dedicated high yield managers however, are forced to be fully invested in the asset class, which places the onus on the investor to make the decision to remove the exposure from their portfolio.

7 Barometer Disciplined Approach Disciplined selling is a key part of the Barometer investment philosophy and although high yield investments present unique challenges in this respect, we still employ a strict strategy focused on managing small losses so that they do not translate into big losses. Similar in philosophy to our equity sell strategy, following is out approach to high yield: Upon investing in a high yield issue, we construct our own cash-flow and interest coverage models to ensure that the company has the capacity to pay its obligations; Once established, we set exit levels on the basis of both absolute and relative developments in these metrics, and should coverage or cash-flow metrics commence a downward trend, we will exit the position; If we own the equity of an issuer, then we monitor the equity position with an eye on the potential impact on the corresponding bond issue; should we elect to liquidate the equity, we will reassess our view on the underlying credit;

8 From a yield perspective, if any issue that we own starts to trade through a predetermined yield level, we will liquidate; and, Most importantly, because Barometer does not manage its high yield portfolio against a high yield benchmark, any material deterioration in this market will see Barometer exit the space altogether and seek leadership elsewhere. Current Performance In broad market terms, we believe the high yield sector currently remains fairly priced and in our opinion is well positioned for a rebound should economic conditions start to improve. Yield spreads over investment grade bonds continue Source: Bank of Canada, Bloomberg Finance L.P. to remain attractive, and present considerable scope for price appreciation while also generating attractive income. With respect to our current holdings, overall we have experienced positive movement in yields over the course of our holding period.

9 As of November 16 th, 2012 Source: Bloomberg Finance L.P. Key Risks No investment strategy is without its hazards, and although we feel that our portfolio of high yield investments provides attractive risk adjusted returns, it is important to point out some of the unique risks associated with high yield corporate bonds. As with all corporate fixed-income investments, one of the greatest risks to a bond portfolio is an expansion in credit spreads, which would come as a result of an overall deterioration in perceived credit quality for underlying issuers. This deterioration in credit quality could come as a result of a significant market event (i.e., the failure of Lehman, which had adverse implications for all corporate borrowers), deterioration in the broader economy, which would impact corporate profitability, or finally as a result of a specific corporate event, which would be more issue specific. In each case, a widening of the spread over government securities would likely result in a price decline in the portfolio and would negatively impact returns.

10 While we cannot completely eliminate the risks associated with unforeseen market disruptions like we experienced in 2008, as a tactical manger we can react to market signals that point to deterioration in an asset class and choose to liquidate our exposures. As mentioned previously, unlike style specific funds (i.e., High Yield Corporate Bond Funds) we are not mandated to be in the asset class and can chose to move out of it should the risk/reward metrics show deterioration. However, there is always a risk that unforeseen market events could materially impact liquidity in the secondary market preventing our ability to liquidate positions. But given that our thesis is to own issues with constructive valuations and coverage metrics, and by observing concentration limits across asset classes and single securities, we position our portfolios such that we can best manage through forced liquidation in distressed markets. From the perspective of individual issuers, we monitor our cash-flow models and coverage ratios to ensure that issuers have the capacity to pay and that there are sufficient unencumbered assets on the balance sheet to satisfy claims in the event of default. In the event that these models point to significant deterioration, we may liquidate the position and redeploy capital elsewhere. A move higher in interest rates would also have a detrimental impact on bond prices (as interest rates and bond prices are inversely related). But as noted earlier in this paper, high yield bonds have a much weaker correlation with broader bond yields, as higher interest rates are generally associated with a stronger economy, which is positive for corporate issuers. While we construct and monitor our high yield portfolio in the basis of relative spreads, the average duration for our high income portfolio is just under 4 years suggesting that there is significantly lower interest rate risk in the portfolio then a mid- to long-term investment grade or sovereign bond portfolio. Finally, bankruptcy is the most extreme risk facing an investor in the corporate structure be it as a common shareholder or a bondholder. While there can be no guarantee that either will recover all or part of their investment in the event

11 that a company becomes insolvent, by owning the bond an investor will rank in priority on claims on the corporate assets over the common equity holders. Conclusion While on the path to maturity, we continue to see opportunities in the Canadian high yield market, which presents attractive risk/reward opportunities. With our experience in the Canadian credit landscape through the last decade, we have the tools to confidently access discrete credit risk in this space. And, we believe that there are pricing discrepancies which present compelling reasons to include quality high yield issues within our investment portfolios. High yield bonds provide attractive income streams but at the same time are natural hedges against higher interest rates which, we see as inevitable over the next few years. These greater correlations to broader economic conditions, as opposed to central bank actions, help provide efficiency within a well-constructed portfolio. Disclaimer: The statements and statistics contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. This report is for informational purposes only and is not an offer or solicitation with respect to the purchase or sale of any investment fund, security or other product. Particular investment or trading strategies should be evaluated relative to each individual s objectives. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance. This document does not provide individual financial legal, investment or tax advice. Please consult your own legal, investment and tax advisor. All opinions and other information in this document are subject to change without notice. Barometer is not liable for any errors or omissions in the information or for any loss or damage suffered.

Investment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income?

Investment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income? Fixed income investments make up a large proportion of the investment universe and can form a significant part of a diversified portfolio but investors are often much less familiar with how fixed income

More information

An Alternative Way to Diversify an Income Strategy

An Alternative Way to Diversify an Income Strategy Senior Secured Loans An Alternative Way to Diversify an Income Strategy Alternative Thinking Series There is no shortage of uncertainty and risk facing today s investor. From high unemployment and depressed

More information

Introduction to Convertible Debentures

Introduction to Convertible Debentures Introduction to Convertible Debentures Intro to Convertible Debentures March, 2009 Convertible debentures are hybrid securities which offer advantages of both bonds and equities. Like ordinary bonds they

More information

BERYL Credit Pulse on High Yield Corporates

BERYL Credit Pulse on High Yield Corporates BERYL Credit Pulse on High Yield Corporates This paper will summarize Beryl Consulting 2010 outlook and hedge fund portfolio construction for the high yield corporate sector in light of the events of the

More information

Fixed Income: The Hidden Risk of Indexing

Fixed Income: The Hidden Risk of Indexing MANNING & NAPIER ADVISORS, INC. Fixed Income: The Hidden Risk of Indexing Unless otherwise noted, all figures are based in USD. Fixed income markets in the U.S. are vast. At roughly twice the size of domestic

More information

Priority Senior Secured Income Fund, Inc.

Priority Senior Secured Income Fund, Inc. Priority Senior Secured Income Fund, Inc. This material is neither an offer to sell nor the solicitation of an offer to buy any security. Such an offer can be made only by prospectus, which has been filed

More information

Re-Assessing Multi-Strategy Hedge Funds Aaron Mirandon, Associate Portfolio Manager

Re-Assessing Multi-Strategy Hedge Funds Aaron Mirandon, Associate Portfolio Manager Re-Assessing Multi-Strategy Hedge Funds Aaron Mirandon, Associate Portfolio Manager { Overview } The market returns from September 2008 through mid-2010 have introduced some extraordinary market movements

More information

Sankaty Advisors, LLC

Sankaty Advisors, LLC Leveraged Loans: A Primer December 2012 In today s market environment of low rates and slow growth, we believe that leveraged loans offer a unique diversification option for fixed income portfolios due

More information

Holding the middle ground with convertible securities

Holding the middle ground with convertible securities January 2015» White paper Holding the middle ground with convertible securities Eric N. Harthun, CFA Portfolio Manager Robert L. Salvin Portfolio Manager Key takeaways Convertible securities are an often-overlooked

More information

The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong

The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Investment Insights The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Kevin Lorenz, CFA, Managing Director, Lead Portfolio Manager of TIAA-CREF's High-Yield Fund

More information

Prospectus Socially Responsible Funds

Prospectus Socially Responsible Funds Prospectus Socially Responsible Funds Calvert Social Investment Fund (CSIF) Balanced Portfolio Equity Portfolio Enhanced Equity Portfolio Bond Portfolio Money Market Portfolio Calvert Social Index Fund

More information

FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS. Why does the bank loan sector remain so attractive?

FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS. Why does the bank loan sector remain so attractive? FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS Bank loans present a compelling income opportunity and a portfolio diversifier that provides protection against traditional

More information

An Alternative to Fixed Rate Bonds

An Alternative to Fixed Rate Bonds An Alternative to Fixed Rate Bonds Voya Senior Loans Suite offered by Aston Hill Financial Seeks to pay high income in various rate environments One of the world s largest dedicated senior loan teams Five

More information

Fixed-income opportunity: Short duration high yield

Fixed-income opportunity: Short duration high yield March 2014 Insights from: An income solution for a low or rising interest-rate environment Generating income is a key objective for many investors, and one that is increasingly difficult to achieve in

More information

FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS

FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS With about $713 billion in assets, the bank loan market is roughly half the size of the high yield market. However, demand

More information

The Pinnacle Funds. Simplified Prospectus. December 11, 2009 Class A and Class F units and Class I units where noted. Money Market Fund.

The Pinnacle Funds. Simplified Prospectus. December 11, 2009 Class A and Class F units and Class I units where noted. Money Market Fund. The Pinnacle Funds Simplified Prospectus December 11, 2009 Class A and Class F units and Class I units where noted Money Market Fund Pinnacle Short Term Income Fund Bond Funds Pinnacle Income Fund Pinnacle

More information

A leveraged. The Case for Leveraged Loans. Introduction - What is a Leveraged Loan?

A leveraged. The Case for Leveraged Loans. Introduction - What is a Leveraged Loan? PENN Capital Management The Navy Yard Corporate Center 3 Crescent Drive, Suite 400 Philadelphia, PA 19112 Phone: 215-302-1501 www.penncapital.com For more information: Christian Noyes, Senior Managing

More information

Understanding Fixed Income

Understanding Fixed Income Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding

More information

An Attractive Income Option for a Strategic Allocation

An Attractive Income Option for a Strategic Allocation An Attractive Income Option for a Strategic Allocation Voya Senior Loans Suite A strategic allocation provides potential for high and relatively steady income through most credit and rate cycles Improves

More information

Fixed Income Liquidity in a Rising Rate Environment

Fixed Income Liquidity in a Rising Rate Environment Fixed Income Liquidity in a Rising Rate Environment 2 Executive Summary Ò Fixed income market liquidity has declined, causing greater concern about prospective liquidity in a potential broad market sell-off

More information

Opportunity in leveraged companies

Opportunity in leveraged companies February 2015» White paper Opportunity in leveraged companies David L. Glancy Portfolio Manager Key takeaways Leverage can create attractive investment opportunities. Leveraged-company securities offer

More information

Opportunities and risks in credit. Michael Korber Head of Credit

Opportunities and risks in credit. Michael Korber Head of Credit Opportunities and risks in credit Michael Korber Head of Credit August 2009 Overview Fixed income assets, characteristics and risks Where the current opportunity is in fixed income markets How to access

More information

Leveraged Bank Loans. Prudential Investment Management-Fixed Income. Leveraged Loans: Capturing Investor Attention August 2005

Leveraged Bank Loans. Prudential Investment Management-Fixed Income. Leveraged Loans: Capturing Investor Attention August 2005 Prudential Investment Management-Fixed Income Leveraged Loans: Capturing Investor Attention August 2005 Ross Smead Head of US Bank Loan Team, Prudential Investment Management-Fixed Income Success in today

More information

Leveraged Loan Funds: Debunking the Myths

Leveraged Loan Funds: Debunking the Myths Leveraged Loan Funds: Debunking the Myths SM Leveraged Loan Funds: Debunking the Myths Contents 2 Myth #1: Managing liquidity in actively managed leveraged loan mutual funds is difficult. 3 Myth #2: In

More information

COMMUNITY FOUNDATION OF GREATER MEMPHIS, INC. INVESTMENT GUIDELINES FOR MONEY MARKET POOL

COMMUNITY FOUNDATION OF GREATER MEMPHIS, INC. INVESTMENT GUIDELINES FOR MONEY MARKET POOL INVESTMENT GUIDELINES FOR MONEY MARKET POOL discretionary Money Market Pool is expected to pursue their stated investment strategy and follow the investment guidelines and objectives set forth herein.

More information

The FPA Absolute Fixed Income Strategy (including FPA New Income, Inc.) Investment Policy Statement

The FPA Absolute Fixed Income Strategy (including FPA New Income, Inc.) Investment Policy Statement The FPA Absolute Fixed Income Strategy (including FPA New Income, Inc.) Investment Policy Statement Introduction The FPA Absolute Fixed Income Strategy (including FPA New Income, Inc.) is one of the longest

More information

TRANSAMERICA SERIES TRUST Transamerica Vanguard ETF Portfolio Conservative VP. Supplement to the Currently Effective Prospectus and Summary Prospectus

TRANSAMERICA SERIES TRUST Transamerica Vanguard ETF Portfolio Conservative VP. Supplement to the Currently Effective Prospectus and Summary Prospectus TRANSAMERICA SERIES TRUST Transamerica Vanguard ETF Portfolio Conservative VP Supplement to the Currently Effective Prospectus and Summary Prospectus * * * The following replaces in their entirety the

More information

Russell Funds Russell Commodity Strategies Fund Money Manager and Russell Investments Overview June 2016. Russell Investments approach

Russell Funds Russell Commodity Strategies Fund Money Manager and Russell Investments Overview June 2016. Russell Investments approach Money Manager and Russell Investments Overview June 206 Russell Investments approach Russell Investments uses a multi-asset approach to investing, combining asset allocation, manager selection and ongoing

More information

Understanding Bank Loans: Opportunities for Diversification and Risk Reduction

Understanding Bank Loans: Opportunities for Diversification and Risk Reduction Understanding Bank Loans: Opportunities for Diversification and Risk Reduction December 28 By: Niklas Nordenfelt, CFA Senior Portfolio Manager, Co-Manager of Sutter High Yield Fixed Income Paolo L. Villasenor

More information

A case for high-yield bonds

A case for high-yield bonds By: Yoshie Phillips, CFA, Senior Research Analyst AUGUST 212 A case for high-yield bonds High-yield bonds have historically produced strong returns relative to those of other major asset classes, including

More information

High-Yield Spread U.S. 10-Year Treasury Yield Investment Grade Spread

High-Yield Spread U.S. 10-Year Treasury Yield Investment Grade Spread WisdomTree ETFs BOFA MERRILL LYNCH HIGH YIELD BOND ZERO DURATION FUND HYZD The U.S. high-yield bond market has been one of the best-performing subsets of the fixed income investable universe over the past

More information

Seeking Alternatives. Senior loans an innovative asset class

Seeking Alternatives. Senior loans an innovative asset class Trends 09 10.11 Seeking Alternatives Senior loans an innovative asset class Dirk Wieringa, Alternative Investments Advisory Senior loans are an innovative asset class that provide a hedge against rising

More information

January 2008. Bonds. An introduction to bond basics

January 2008. Bonds. An introduction to bond basics January 2008 Bonds An introduction to bond basics The information contained in this publication is for general information purposes only and is not intended by the Investment Industry Association of Canada

More information

CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing

CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing A Challenging Environment for Investors MOVING BEYOND TRADITIONAL FIXED-INCOME INVESTING ALONE For many advisors and

More information

BOND ALERT. What Investors Should Know. July 2013 WWW.LONGVIEWCPTL.COM 2 MILL ROAD, SUITE 105

BOND ALERT. What Investors Should Know. July 2013 WWW.LONGVIEWCPTL.COM 2 MILL ROAD, SUITE 105 BOND ALERT July 2013 What Investors Should Know This special report will help you understand the current environment for bonds and discuss how that environment may change with rising interest rates. We

More information

SACRS Fall Conference 2013

SACRS Fall Conference 2013 SACRS Fall Conference 2013 Bank Loans November 14, 2013 Allan Martin, Partner What Are Floating Rate Bank Loans? Senior secured floating rate debt: Current Typical Terms: Spread: LIBOR + 5.00%-6.00% LIBOR

More information

Understanding Convertible Bonds

Understanding Convertible Bonds Market Insights Understanding Convertible Bonds 07/2013 What investment pays interest and repays principal like a bond, but also can offer appreciation potential, like a stock? The answer may be found

More information

Chapter 12. Page 1. Bonds: Analysis and Strategy. Learning Objectives. INVESTMENTS: Analysis and Management Second Canadian Edition

Chapter 12. Page 1. Bonds: Analysis and Strategy. Learning Objectives. INVESTMENTS: Analysis and Management Second Canadian Edition INVESTMENTS: Analysis and Management Second Canadian Edition W. Sean Cleary Charles P. Jones Chapter 12 Bonds: Analysis and Strategy Learning Objectives Explain why investors buy bonds. Discuss major considerations

More information

The Credit Analysis Process: From In-Depth Company Research to Selecting the Right Instrument

The Credit Analysis Process: From In-Depth Company Research to Selecting the Right Instrument Featured Solution May 2015 Your Global Investment Authority The Credit Analysis Process: From In-Depth Company Research to Selecting the Right Instrument In today s low yield environment, an active investment

More information

The Search for Yield Continues: A Re-introduction to Bank Loans

The Search for Yield Continues: A Re-introduction to Bank Loans INSIGHTS The Search for Yield Continues: A Re-introduction to Bank Loans 203.621.1700 2013, Rocaton Investment Advisors, LLC Executive Summary With the Federal Reserve pledging to stick to its zero interest-rate

More information

Why high-yield municipal bonds may be attractive in today s market environment

Why high-yield municipal bonds may be attractive in today s market environment Spread Why high-yield municipal bonds may be attractive in today s market environment February 2014 High-yield municipal bonds may be attractive given their: Historically wide spreads Attractive prices

More information

Equity Investing Evolved Manage risk, stay invested

Equity Investing Evolved Manage risk, stay invested Equity Investing Evolved Manage risk, stay invested HSBC Buffered Strategies Are you on track to meet your retirement and investment goals? Have extreme market swings prevented you from investing? Would

More information

Structured Products. Designing a modern portfolio

Structured Products. Designing a modern portfolio ab Structured Products Designing a modern portfolio Achieving your personal goals is the driving motivation for how and why you invest. Whether your goal is to grow and preserve wealth, save for your children

More information

FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK

FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK 1 FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK By Michael McMurray, CFA Senior Consultant As all investors are aware, fixed income yields and overall returns generally have been

More information

Investor Guide to Bonds

Investor Guide to Bonds Investor Guide Investor Guide to Bonds threadneedle.com Introduction Why invest in bonds? Although your capital is normally considered safe in a traditional deposit account, low interest rates have eroded

More information

Are Unconstrained Bond Funds a Substitute for Core Bonds?

Are Unconstrained Bond Funds a Substitute for Core Bonds? TOPICS OF INTEREST Are Unconstrained Bond Funds a Substitute for Core Bonds? By Peter Wilamoski, Ph.D. Director of Economic Research Philip Schmitt, CIMA Senior Research Associate AUGUST 2014 The problem

More information

A GUIDE TO FLOATING RATE BANK LOANS:

A GUIDE TO FLOATING RATE BANK LOANS: Contact information: Advisor Services: (631) 629-4908 E-mail: info@catalystmf.com Website: www.catalystmf.com A GUIDE TO FLOATING RATE BANK LOANS: An Attractive Investment for a Rising Interest Rate Environment

More information

ABSTRACT INTRODUCTION

ABSTRACT INTRODUCTION MEKETA INVESTMENT GROUP PREFERRED STOCKS ABSTRACT The long, gradual decline in bond yields that started in the mid-1980s has culminated in an environment of very low interest rates. This has motivated

More information

Bond Outlook. Third Quarter 2014. Waiting on the Fed. 10-Year Treasury Yields. Treasury Bonds. Break-even Inflation Rate

Bond Outlook. Third Quarter 2014. Waiting on the Fed. 10-Year Treasury Yields. Treasury Bonds. Break-even Inflation Rate Third Quarter 21 Waiting on the Fed Despite a strong rebound in domestic economic activity with gross domestic production accelerating toward %, persistent low inflationary pressures and dramatically lower

More information

SSgA CAPITAL INSIGHTS

SSgA CAPITAL INSIGHTS SSgA CAPITAL INSIGHTS viewpoints Part of State Street s Vision thought leadership series A Stratified Sampling Approach to Generating Fixed Income Beta PHOTO by Mathias Marta Senior Investment Manager,

More information

Diversify Your Portfolio with Senior Loans

Diversify Your Portfolio with Senior Loans January 2013 Diversify Your Portfolio with Senior Loans White Paper INVESTMENT MANAGEMENT For financial professional or qualified institutional investor use only. Not for inspection by, distribution or

More information

Diversify Your Portfolio with Senior Loans

Diversify Your Portfolio with Senior Loans Diversify Your Portfolio with Senior Loans White Paper April 2015 Not FDIC Insured May Lose Value No Bank Guarantee For financial professional or use qualified only. Not institutional for inspection investor

More information

The Empirical Approach to Interest Rate and Credit Risk in a Fixed Income Portfolio

The Empirical Approach to Interest Rate and Credit Risk in a Fixed Income Portfolio www.empirical.net Seattle Portland Eugene Tacoma Anchorage March 27, 2013 The Empirical Approach to Interest Rate and Credit Risk in a Fixed Income Portfolio By Erik Lehr In recent weeks, market news about

More information

Impact of rising interest rates on preferred securities

Impact of rising interest rates on preferred securities Impact of rising interest rates on preferred securities This report looks at the risks preferred investors may face in a rising-interest-rate environment. We are currently in a period of historically low

More information

Opportunities in credit higher quality high-yield bonds

Opportunities in credit higher quality high-yield bonds Highlights > > Default rates below the long-term average > > Valuations wide of historical average in BB and B rated credit > > Despite sluggish economy, high yield can still perform well > > High yield

More information

2013 GSAM Insurance Survey & Industry Investment Trends

2013 GSAM Insurance Survey & Industry Investment Trends Global Insurance Asset Management AASCIF Annual Workshop Fall 23 23 GSAM Insurance Survey & Industry Investment Trends Michael Siegel, PhD Global Head of GSAM Insurance Asset Management September 3, 23

More information

Maturity The date where the issuer must return the principal or the face value to the investor.

Maturity The date where the issuer must return the principal or the face value to the investor. PRODUCT INFORMATION SHEET - BONDS 1. WHAT ARE BONDS? A bond is a debt instrument issued by a borrowing entity (issuer) to investors (lenders) in return for lending their money to the issuer. The issuer

More information

High Yield Municipal Bond Outlook

High Yield Municipal Bond Outlook INSIGHTS High Yield Municipal Bond Outlook 203.621.1700 2014, Rocaton Investment Advisors, LLC EXECUTIVE SUMMARY Uncertainty surrounding Federal Reserve interest rate policies and negative municipal headlines

More information

Managing Risk/Reward in Fixed Income

Managing Risk/Reward in Fixed Income INSIGHTS Managing Risk/Reward in Fixed Income Using Global Currency-Hedged Indices as Benchmarks In the pursuit of alpha, is it better to use a global hedged or unhedged index as a benchmark for measuring

More information

Taxable Fixed Income. Invesco Floating Rate Fund (AFRAX)

Taxable Fixed Income. Invesco Floating Rate Fund (AFRAX) Taxable Fixed Income Invesco Floating Rate Fund (AFRAX) Senior Secured Loans A unique asset class Floating rate funds, also called senior loan funds, invest in senior secured loans. The loans have very

More information

A guide to investing in hybrid securities

A guide to investing in hybrid securities A guide to investing in hybrid securities Before you make an investment decision, it is important to review your financial situation, investment objectives, risk tolerance, time horizon, diversification

More information

KDP ASSET MANAGEMENT, INC.

KDP ASSET MANAGEMENT, INC. ASSET MANAGEMENT, INC. High Yield Bond and Senior Secured Bank Loan Outlook March 2016 Asset Management, Inc. 24 Elm Street Montpelier, Vermont 802.223.0440 HighYield@kdpam.com The Case for High Yield

More information

The buck stops here: Vanguard money market funds

The buck stops here: Vanguard money market funds The buck stops here: Vanguard money market funds Vanguard commentary September Executive summary. Money market funds play an important role for Vanguard clients, providing a high-quality and liquid investment

More information

INSURANCE RATING METHODOLOGY

INSURANCE RATING METHODOLOGY INSURANCE RATING METHODOLOGY The primary function of PACRA is to evaluate the capacity and willingness of an entity / issuer to honor its financial obligations. Our ratings reflect an independent, professional

More information

Mawer Canadian Bond Fund. Interim Management Report of Fund Performance

Mawer Canadian Bond Fund. Interim Management Report of Fund Performance Interim Management Report of Fund Performance For the Period Ended June 30, 2015 This interim management report of fund performance contains financial highlights but does not contain either interim or

More information

Questions and Answers About Senior Secured Loans

Questions and Answers About Senior Secured Loans Revised August 2013 Senior Secured Loans Questions and Answers About Senior Secured Loans Joe Lemanowicz Managing Director and Head of U.S. Senior Secured Loan Team Pramerica Fixed Income U.S. senior secured

More information

Balanced fund: A mutual fund with a mix of stocks and bonds. It offers safety of principal, regular income and modest growth.

Balanced fund: A mutual fund with a mix of stocks and bonds. It offers safety of principal, regular income and modest growth. Wealth for Life Glossary Aggressive growth fund: A mutual fund that aims for the highest capital gains. They often invest in smaller emerging companies that offer maximum growth potential. Adjustable Rate

More information

Insurance Dedicated Funds: Variable Insurance Trusts

Insurance Dedicated Funds: Variable Insurance Trusts At a Glance September 2015 Insurance Dedicated Funds: Variable Insurance Trusts Our goal at GSAM is to meet the financial goals of investors worldwide, now and in the future, with innovative investment

More information

High Yield Bonds in a Rising Rate Environment August 2014

High Yield Bonds in a Rising Rate Environment August 2014 This paper examines the impact rising rates are likely to have on high yield bond performance. We conclude that while a rising rate environment would detract from high yield returns, historically returns

More information

Bond Fund Investing in a Rising Rate Environment

Bond Fund Investing in a Rising Rate Environment MUTUAL FUND RESEARCH Danette Szakaly Ext. 71937 Date Issued: 1/14/11 Fund Investing in a Rising Rate Environment The recent rise in U.S. Treasury bond yields has some investors wondering how to manage

More information

CONVERTIBLE DEBENTURES A PRIMER

CONVERTIBLE DEBENTURES A PRIMER What are convertible debentures? CONVERTIBLE DEBENTURES A PRIMER They are hybrid securities, combining the features of a conventional debenture with the option of converting, under certain circumstances,

More information

Spectrum Insights. Bond and stock market around the same size Australian bonds vs Australian stock market

Spectrum Insights. Bond and stock market around the same size Australian bonds vs Australian stock market Market capitalization $b Spectrum Insights Damien Wood, Principal JUNE 9, 2015 Corporate bonds often provides investors with an income stream that is above deposit rates, but less risky than dividends

More information

Catalyst/Princeton Floating Rate Income Fund Class A: CFRAX Class C: CFRCX Class I: CFRIX SUMMARY PROSPECTUS NOVEMBER 1, 2015

Catalyst/Princeton Floating Rate Income Fund Class A: CFRAX Class C: CFRCX Class I: CFRIX SUMMARY PROSPECTUS NOVEMBER 1, 2015 Catalyst/Princeton Floating Rate Income Fund Class A: CFRAX Class C: CFRCX Class I: CFRIX SUMMARY PROSPECTUS NOVEMBER 1, 2015 Before you invest, you may want to review the Fund s complete prospectus, which

More information

Global Markets Update Signature Global Advisors

Global Markets Update Signature Global Advisors SIGNATURE GLOBAL ADVISORS MARKETS UPDATE AUGUST 3, 2011 The following comments come from an internal interview with Chief Investment Officer, Eric Bushell. They represent Signature s current market views

More information

A case for high-yield bonds

A case for high-yield bonds By: Yoshie Phillips, CFA, Senior Research Analyst MAY 212 A case for high-yield bonds High-yield bonds have historically produced strong returns relative to those of other major asset classes, including

More information

High yield bonds. US senior loans update. begin on page 4.

High yield bonds. US senior loans update. begin on page 4. Chief Investment Office WM 20 March 2014 High yield bonds US senior loans update Barry McAlinden, CFA, strategist, UBS FS barry.mcalinden@ubs.com, +1 212 713 3261 Loan performance can best be characterized

More information

Financial Markets and Institutions Abridged 10 th Edition

Financial Markets and Institutions Abridged 10 th Edition Financial Markets and Institutions Abridged 10 th Edition by Jeff Madura 1 23 Mutual Fund Operations Chapter Objectives provide a background on mutual funds describe the various types of stock and bond

More information

The case for high yield

The case for high yield The case for high yield Jennifer Ponce de Leon, Vice President, Senior Sector Leader Wendy Price, Director, Institutional Product Management We believe high yield is a compelling relative investment opportunity

More information

Finding the Right Fit with Commercial Mortgages

Finding the Right Fit with Commercial Mortgages Finding the Right Fit with Commercial Mortgages Key Takeaways Mortgages provide strong risk-adjusted return potential Investors can implement mortgages as a stand-alone alternative or integrated bond exposure

More information

Risk Control and Equity Upside: The Merits of Convertible Bonds for an Insurance Portfolio

Risk Control and Equity Upside: The Merits of Convertible Bonds for an Insurance Portfolio Risk Control and Equity Upside: The Merits of Convertible Bonds for an Insurance Portfolio In a survey of insurance company Chief Investment Officers conducted by Eager, Davis & Holmes 1 in May 2009, 43%

More information

Rethinking Fixed Income:

Rethinking Fixed Income: Rethinking Fixed Income: The Importance of Income and Flexibility January 2011 Executive Summary Over the past 30 years, fixed-income investors have benefited from one of the largest secular trends in

More information

Investing in Debt Funds

Investing in Debt Funds 10 February, 2012 Investing in Debt Funds Debt securities (bonds) are a fundamental part of an investing plan for most investors. There are many types of bonds along with varied approaches to debt fund

More information

Russell Funds Russell Tax Exempt Bond Fund Money Manager and Russell Overview September 2015

Russell Funds Russell Tax Exempt Bond Fund Money Manager and Russell Overview September 2015 Money Manager and Russell Overview September 2015 Russell s investment approach Russell uses a multi-asset approach to investing, combining asset allocation, manager selection and ongoing portfolio management

More information

1. General Obligation Bonds (G.O.s): Bonds backed by the full taxing power of the issuer.

1. General Obligation Bonds (G.O.s): Bonds backed by the full taxing power of the issuer. S&P INDICES Fixed Income February 2010 S&P Fixed Income Indices: Municipal Bond Investor Tool Kit Key Terms Alternative Minimum Tax (AMT): An extra tax that some taxpayers are required to pay in addition

More information

Mezzanine Finance. by Corry Silbernagel Davis Vaitkunas Bond Capital. With a supplement by Ian Giddy

Mezzanine Finance. by Corry Silbernagel Davis Vaitkunas Bond Capital. With a supplement by Ian Giddy Mezzanine Finance by Corry Silbernagel Davis Vaitkunas Bond Capital With a supplement by Ian Giddy Mezzanine Debt--Another Level To Consider Mezzanine debt is used by companies that are cash flow positive

More information

SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE. BKLN PowerShares Senior Loan Portfolio

SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE. BKLN PowerShares Senior Loan Portfolio SHARES NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE PowerShares Senior Loan Portfolio PowerShares Senior Loan Portfolio is the first senior loan exchange-traded fund (ETF) and seeks investment results

More information

KDP ASSET MANAGEMENT, INC.

KDP ASSET MANAGEMENT, INC. ASSET MANAGEMENT, INC. High Yield Bond and Senior Secured Bank Loan Outlook October 2015 Asset Management, Inc. 24 Elm Street Montpelier, Vermont 802.223.0440 HighYield@kdpam.com This is an analytical

More information

Why Anfield s Universal Fixed Income Fund?

Why Anfield s Universal Fixed Income Fund? Why Anfield s Universal Fixed Income Fund? Disclosure Investors should carefully consider the investment objectives, risks, charges and expenses of the Anfield Universal Fixed Income Fund. This and other

More information

City National Rochdale Intermediate Fixed Income Fund a series of City National Rochdale Funds

City National Rochdale Intermediate Fixed Income Fund a series of City National Rochdale Funds City National Rochdale Intermediate Fixed Income Fund a series of City National Rochdale Funds SUMMARY PROSPECTUS DATED JANUARY 31, 2015, AS SUPPLEMENTED MAY 1, 2015 Class: Class N Institutional Class

More information

CHAPTER 9 DEBT SECURITIES. by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA

CHAPTER 9 DEBT SECURITIES. by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA CHAPTER 9 DEBT SECURITIES by Lee M. Dunham, PhD, CFA, and Vijay Singal, PhD, CFA LEARNING OUTCOMES After completing this chapter, you should be able to do the following: a Identify issuers of debt securities;

More information

Unconstrained fixed income may offer a compelling solution for today s bond market challenges

Unconstrained fixed income may offer a compelling solution for today s bond market challenges INVESTMENT OPPORTUNITIES The market direction and your portfolio Unconstrained fixed income may offer a compelling solution for today s bond market challenges Why now? n Elevated risks and prolonged dismal

More information

Product Key Facts. PineBridge Global Funds PineBridge Global Emerging Markets Bond Fund. 22 December 2014

Product Key Facts. PineBridge Global Funds PineBridge Global Emerging Markets Bond Fund. 22 December 2014 Issuer: PineBridge Investments Ireland Limited Product Key Facts PineBridge Global Funds PineBridge Global Emerging Markets Bond Fund 22 December 2014 This statement provides you with key information about

More information

Convertible Bonds: A Tool for More Efficient Portfolios

Convertible Bonds: A Tool for More Efficient Portfolios Wellesley Investment Advisors August 2014 Publication Convertible Bonds: A Tool for More Efficient Portfolios Michael D. Miller, Co-Chief Investment Officer Michael T. Cavanaugh III, Managing Director

More information

Seix Total Return Bond Fund

Seix Total Return Bond Fund Summary Prospectus Seix Total Return Bond Fund AUGUST 1, 2015 (AS REVISED FEBRUARY 1, 2016) Class / Ticker Symbol A / CBPSX R / SCBLX I / SAMFX IS / SAMZX Before you invest, you may want to review the

More information

an OmniArch Investment Opportunity FIXED INCOME BOND

an OmniArch Investment Opportunity FIXED INCOME BOND an OmniArch Investment Opportunity FIXED INCOME BOND A OmniArch is an alternative investment firm dedicated to developing and providing investment opportunities rooted in real estate, media and asset backed

More information

PowerShares Smart Beta Income Portfolio 2016-1 PowerShares Smart Beta Growth & Income Portfolio 2016-1 PowerShares Smart Beta Growth Portfolio 2016-1

PowerShares Smart Beta Income Portfolio 2016-1 PowerShares Smart Beta Growth & Income Portfolio 2016-1 PowerShares Smart Beta Growth Portfolio 2016-1 PowerShares Smart Beta Income Portfolio 2016-1 PowerShares Smart Beta Growth & Income Portfolio 2016-1 PowerShares Smart Beta Growth Portfolio 2016-1 The unit investment trusts named above (the Portfolios

More information

Senior Floating Rate Loans

Senior Floating Rate Loans Senior floating rate loans have become a staple of the U.S. debt market and have grown from a market value of $126 billion in 2001 to $607 billion as of year-end 2011. 1 For over 20 years, managed senior

More information

Russell Funds Russell Tax Exempt High Yield Bond Fund Money Manager and Russell Overview November 2015

Russell Funds Russell Tax Exempt High Yield Bond Fund Money Manager and Russell Overview November 2015 Russell Tax Exempt High Yield Bond Fund Money Manager and Russell Overview November 2015 Russell s investment approach Russell uses a multi-asset approach to investing, combining asset allocation, manager

More information

City National Rochdale High Yield Bond Fund a series of City National Rochdale Funds

City National Rochdale High Yield Bond Fund a series of City National Rochdale Funds City National Rochdale High Yield Bond Fund a series of City National Rochdale Funds SUMMARY PROSPECTUS DATED JANUARY 31, 2015, AS SUPPLEMENTED MAY 1, 2015 Class: Institutional Class Servicing Class Class

More information

Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions

Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Contents Executive

More information