Home>Video>Solid Options Still Remain in High-Yield Market

Solid Options Still Remain in High-Yield Market

Thu, 31 Jul 2014

Despite muted expectations for the high-yield space, Morningstar analyst Sumit Desai identifies two solid funds for investors seeking exposure.

+

Video Transcript

Sumit Desai: High-yield bonds are at the crossroads between fixed income and equities. Historically, this space has shown a higher correlation to equities, but recently many fixed income investors have been looking to the high-yield space for higher yields and income. Over the past 12 months, over $18 billion has flown into this space and has driven strong returns. Over the past five years, the category has returned, on average, an 11.8% annualized return. Year to date, the category has returned 4.4%.

Going forward, we think investors should have muted expectations for this space. The strong demand has driven valuations--as measured by absolute yields and spreads over Treasuries--to near all-time lows, leaving little room for upside going forward. The corporate fundamental outlook remains strong, and companies should be able to make their interest payments without any problem. That being said, any change to this economic outlook could have a pretty sizable negative impact on the category.

Two Morningstar Medalist funds in this space include Fidelity High Income, which has a Morningstar Analyst Rating of Gold, and Neuberger Berman High Income, a Silver-rated fund. Fidelity High Income has a proven track record of navigating through past financial crises like the 2008 credit crisis. This fund also displays low fees.

The Neuberger Berman High Income Fund has a solid approach, using a team-based fundamental analysis that is highly repeatable. While we maintain modest return expectations for this space, investors who want exposure to high-yield bonds should consider these funds with good managers that can help navigate through a full credit cycle.

  1. Related Videos
  2. Related Articles
  3. Comments
  1. A Portfolio Checkup in 6 Steps

    In this special midyear presentation, Morningstar's Christine Benz demonstrates how to gauge the viability of your current plan, evaluate positioning, troubleshoot risk factors, and much more.

  2. 3 Retiree Pitfalls in a Still-Lofty Market

    Beware the dangers of complacency, remember the virtues of defensive holdings, and resist the temptation to overreach for yield, says Morningstar's Christine Benz.

  3. What the Market Turbulence Means for Investors

    Recent volatility should prompt investors to put their performance in perspective, check their exposures, and update their watchlists.

  4. Bank Loans Not the Same as Money Markets

    The risk of bank-loan defaults is muted at the same time investor demand for such products remains elevated, but this volatile asset class is not for near-term cash needs, says Fidelity's Eric Mollenhauer.

  5. What to Do With Bonds Today

    Given the difficulty of timing interest-rate moves, author Rick Ferri recommends a diversified blend of high-quality bonds , high - yield credits, and a touch of TIPS.

  6. Vaselkiv: Set the Right Expectations for High -Yield Bonds

    Favorable fundamentals and better yields relative to other fixed-income assets make high - yield bonds worthy of a long-term allocation, but investors shouldn't try to time the market and must ratchet down their return expectations, say T. Rowe Price High - Yield manager Mark Vaselkiv.

  7. Practical Strategies for Today's Bond Market

    The outlook for bonds is just as cloudy as ever, but Morningstar's Miriam Sjoblom and Marta Norton offer helpful tips for setting the right expectations and creating a game plan in today's challenging bond market.

  8. Five High -Yield Funds for a Caution-Worthy Market

    With yield spreads back to pre-crisis levels, there is less room for error in the high - yield market today, says Morningstar director of fixed-income research Eric Jacobson.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.