IN THE BACK

Buying high yield as the world heads towards recession can seem counterintuitive , but longterm investors must be able to look through the noise and see the value when it is on the table . High yield is often overlooked as an asset class , with many investors moving straight from investment-grade corporates to equities , skipping a key rung in the capital structure of businesses . High-yield bonds are senior to equities in the case of bankruptcy , hence should have an improved return profile in the event of distress or default . When looking at the expected return profile of high yield , we must make assumptions about the level of defaults expected as well as the recovery ratio of the debt . Scenario analysis of this kind is currently indicating an attractive risk-reward trade-off for high-yield bonds over a standard holding period .

Ready for trouble The world is currently a challenging place and is likely to remain so over the next 12 to 18 months . Interest rates are rising and business balance sheets and margins are set to be tested in the most meaningful way since 2008 , so we are looking to employ an active manager who can navigate these challenges . We want to buy bonds that are mispriced rather than those with the

/ 70 / trustnet . com