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Fund Spy: Morningstar Medalist Edition

High-Yield Funds Hold Up Relatively Well in a Rough Year for Credit

The high-yield market's troubles have been driven primarily by the energy and commodity sectors.

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It had been a rough year for the high-yield bond markets even before Third Avenue announced that it had shuttered its Focused Credit fund on Dec. 10, 2015. On Thursday, though, we noted that we don't expect to see other high-yield funds follow in Third Avenue's footsteps. In this piece, we'll take a closer look at what's been driving the sector's troubles.

Losses in the high-yield market for the year and month to date have been largely driven by companies with exposure to oil, energy, and mining. That's not a new story: The sectors' troubles date to mid-2014 when oil, previously trading in the $100 per barrel neighborhood, began its fall out of bed. As Morningstar senior analyst Sumit Desai pointed out earlier in 2015, the second half of 2014 was bad for the high-yield bond Morningstar Category. Desai compared the category to a dog being wagged by its energy tail: The BofAML US High Yield Energy Index fell 13% during the same stretch.

Eric Jacobson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.