Over the past decade, the growth and expansion of the global high yield markets have transformed the way investors view the asset class. In this article, we discuss the potential benefits of considering a multi credit, “through-the-cycle” approach, which can give investors’ high yield allocation more flexibility, potentially improving their ability to capitalize on opportunities across the global high yield markets as they materialize throughout the credit cycle.
Over the past decade, the growth and expansion of the global high yield markets has contributed to a transformation in investors’ attitudes toward the asset class, with many investors viewing high yield as a core, strategic contributor to their portfolio. In fact, many investors today, rather than questioning when to invest in global high yield, are questioning how.
One answer may be through a high yield multi credit approach, which can have several benefits both in the current environment and through a full credit cycle.
What is high yield multi credit?
The definition of multi credit is far from standardized. At Barings, we think of multi credit investing as a “corporate focused” rather than “go-anywhere” strategy that consists primarily of allocations to the “core four” high yield sub asset classes—U.S. high yield bonds, U.S. loans, European high yield bonds and European loans—with the ability to make opportunistic allocations to collateralized loan obligations (CLOs), and stressed and distressed credits (special situations):
Finding value through the credit cycle
While the U.S. and European high yield markets tend to exhibit some correlation and share similar risk/return profiles, these markets have historically been punctuated by periods of dislocation during which prices have become decoupled from underlying fundamentals, creating widely different opportunities at different points in the credit cycle.