Global High Yield Strategy
Global High Yield Strategy

Global High Yield Strategy

 
 
 
Summary

The Global High Yield Strategy is a value-oriented fixed income strategy that seeks to maximize total returns from income and price appreciation by investing in a globally diversified portfolio of debt issued by corporations and non-government issuers. To help achieve this objective, the strategy uses a bottom-up, credit-intensive approach that looks for relative value opportunities, integrated with top-down macro analysis.

<2%
Security Weight
80-85%
Typically Invested in Middle Market Issuers
170-190
Typical Number of Holdings
 
 
Investment Approach
Philosophy

The investment team aims to take advantage of pricing inefficiencies in the market, which would potentially provide them with the opportunity to earn superior returns. The team believes that the market may misunderstand and misprice the credit quality of certain high yield issuers, and in particular their default risk. Their fundamental, value-driven approach to investing gives them the ability to identify and take advantage of these situations.

The team invests in issuers across the U.S., Europe and Asia, recognizing that the high yield universe is heavily represented by the U.S. Their strategy combines a unique approach to investing in U.S. middle market credits, with less than $1 billion total debt outstanding, with a focus on larger, higher-quality issuers in Europe and in Asia.

The team believes that by using a disciplined and diversified approach, investing in the middle market segment in the U.S. can potentially provide investors with increased yields with limited volatility throughout market cycles and less duration risk than the broader high yield market. Middle market issuers generally receive less scrutiny from market participants including credit rating agencies, underwriters and asset managers. The team believes one of the most attractive features of middle market bonds is derived from an investment manager’s ability to use diligent fundamental research to identify issuers with the strongest credit metrics and then look to benefit from the additional yield they can provide.

 
Differentiators
Focus on middle market credits in the U.S.

Middle market credits typically offer higher coupons and shorter maturities  that can translate into lower duration, which is particularly attractive during the current period of macro risk and rate volatility.

Global perspective

With portfolio managers and credit analysts based in the US, Europe and Asia, MSIM has a true Global High Yield capability. The team’s global approach enables them to effectively capitalize on valuation and mispricing in different sectors and geographies across the global high-yield market.

Bottom-up security selection with top-down overlay

The team focuses on generating returns through bottom-up security selection, but overlay this with a top-down macro and valuation framework. They believe this provides the best opportunities to generate attractive, volatility adjusted returns in different market environments.

Risk management integral to portfolio construction

The team’s bottom-up, relative valuation approach to identifying the securities, complemented by their top-down macro and market valuation analysis, allows them to derive risk targets that they believe reflect the best risk/reward opportunities in the market.

 
 
 
Investment Process
1
Macro Analysis:

In order to determine the optimal positioning of the high yield portfolio, the process begins with a top-down, macroeconomic value assessment of the corporate bond universe, including a consideration of macroeconomic conditions, the corporate earnings environment, relative valuations and expectations of future default rates. Sector positioning results from the team's view on the economic cycle and is intended to allow them to focus on those industry sectors that they feel should do best given where they are in the cycle. Sector rotation generally takes place as their view of the economic cycle changes. Input from the Macro and Asset Allocation teams is useful in developing their assessment of broad economic conditions.

2
Research:

The key to the portfolio management process is intensive fundamental credit research. Portfolio managers work closely with the credit analysts to generate new investment ideas and ensure continual monitoring of the credit quality of existing portfolio holdings. The team views the allocation to ratings as inherent to the fundamental credit analysis because they feel that middle market credits may have ratings that do not properly reflect their true credit quality. The team analyzes the company’s financial statements in an effort to understand whether its capital structure is suitable for the risk entailed in its business. A final key part of the analysis is to understand management’s intentions, in terms of business development and capital structure, and their ability to execute their plans.

3
Portfolio Construction:

A portfolio is constructed with sector allocation driven primarily from bottom-up security selection (subject to risk management guidelines) with focus on middle market credits in the U.S. (defined as issuers with $150 million to $1 billion of total debt outstanding) and larger high yield issuers in Europe and Asia. The team will also strive for the portfolio to be well-diversified at issuer and industry levels.

4
Portfolio Monitoring:

The team continually monitors existing holdings to verify that our clients consistently benefit from our best investment ideas. The credit research teams have regular daily and weekly meetings in which opinions and ideas from all members are debated to ensure that portfolios reflect their best ideas. In addition to these formal meetings, there is constant daily dialogue. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. Integral to the team’s portfolio construction process is the measurement and monitoring of market risk, duration and volatility, and credit risk.

5
Risk Management:

The team views risk management as an integral part of our investment process. Based on this belief, they seek to protect their portfolios from a variety of risks through diversification, credit risk protection and liquidity. The goal is to ensure that portfolios are well balanced and that no single risk dominates the portfolio. In addition to powerful modelling systems with in-depth analysis to manage risks, the team uses a variety of controls to manage and monitor risks in clients' portfolios. Additionally, we are able to code the investment guidelines into the Blackrock Aladdin system for each portfolio we manage. This helps ensure that portfolios are run appropriately and that the Compliance and Risk Departments are able to monitor effectively.

 
 
Portfolio Managers
Managing Director
36 years industry experience
Managing Director
22 years industry experience
Executive Director
13 years industry experience
 
 
Insights
Global Fixed Income Bulletin
A Bumpy Ride
Jun 15, 2018
The Global Fixed Income team discusses how May was a schizophrenic month for financial markets, with both bouts of "risk on" and "risk off", and how they expect the high volatility to continue.
Global Fixed Income Bulletin
Ranges Are Meant to be Broken
May 11, 2018
The Global Fixed Income team discusses how we may have seen markets settle in a range in April, but that new economic data (better or worse) could force the market to change its expectations.
 
 
 
 

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