In this Q&A, Barings’ Head of Global High Yield, Martin Horne, discusses how the Barings team is navigating some of the major risks—from a trade war and Brexit negotiations to rising rates and a maturing credit cycle—present in the markets today.
Looking at the markets today, there is a lot of uncertainty, much of it pertaining to the credit cycle. What is your take on the state of the high yield market—are you seeing riskier behavior on the part of issuers and investors?
We hear lots of questions from investors regarding where we are in the credit cycle and when we might experience a downturn. Many are somewhat unsettled by the fact that the American equity markets, in particular, have run for so long. These concerns aren’t unfounded—history has shown that these runs always have an end date. With that in mind, the question becomes how to stay invested in the high yield markets.
At this stage, we think it’s important to draw some comparisons between today’s markets and the pre-financial crisis markets, which in reality look very different. One of the key differences is that, heading into the 2008 crisis, no one was thinking about the inevitable downturn, or questioning the sustained high returns. Today it’s much different—forecasts show growth, but they show relatively measured growth. Capital structures look far more resilient and are holding up well to stress tests. And the vast majority of the index is still very investable, in our view.