The journey back to normalcy will likely be punctuated with stops and starts. But opportunities will emerge—and being in a position to capture the upside is key.
High yield has regained much ground since the significant selloff in mid-March. But uncertainty remains, and volatility is likely a given going forward—particularly amid fears of a second wave of coronavirus cases. Just as the pandemic and related economic slowdown have been more severe for some industries than others, the pace of recovery will be far from uniform.
Sectors like travel and leisure, entertainment, retail and aerospace have been particularly hard-hit by social distancing trends and mandated closures, as companies have seen revenue decline sharply, in some cases to zero. Many of the companies in these industries have traded down significantly, despite being on solid footing heading into the crisis. However, while this has been an extremely challenging environment, there are select companies across these sectors that look stable from a fundamental perspective and now offer significant upside—as they appear to be well-positioned longer term and could see a strong recovery in demand when the pandemic finally recedes.
There will likely be different ways to access the opportunity as these industries begin to recover, driven in part by technical distortions—such as we have seen across loans and CLOs—as well as by the varying pace of reopening and recovery across geographies.