Advent Capital sees three ways to maintain high yield performance

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The threat of rising short term interest rates in the US suggests that investors in more sensitive high yield fixed income instruments should be worried about the effect on the value of their assets.

Advent Capital Management has, however, published research suggesting that the link between rising interest rates and depressed return on fixed income is not straightforward. Other factors, such as correlation between US government debt and equity markets, could impact the yield investors experience.

Therefore, although the research concludes that investors are right to be concerned about the effects of a return to normal monetary policy in the US, it does not follow that the effects will be felt equally by investors.

For those who are concerned, Advent Capital suggests three ways high yield can still outperform as interest rates rise:

  • Populating the portfolio with high conviction alpha ideas that can outperform in any market
  • Keeping the portfolio duration below that of the index, which reduces overall volatility and downside risk
  • Underweighting BB-rated issues because they are more sensitive to interest rates than lower quality issues with larger credit components

To read the full research click here: High Yield Bonds in a Rising Rate Environment – September 2014


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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