Search Results
Results 1–50
of 53 found.
Return, Risk, and Diversification
by Heather Rupp of AdvisorShares,
When assessing a portfolio and determining their asset class mix, investors often allocate large portion to equities as this is believed to have a much better longer-term investment return profile than “bonds,” while “bonds” are considered less risky and offer a diversification benefit to a portfolio.
The Floating Rate Loan Market: More to Consider
by Heather Rupp of AdvisorShares,
For those concerned about interest rates rising, turning to the floating rate loan market may seem like it could be a great alternative. Over the past few weeks, as we have seen the expectation for higher rates firmly take hold and a spike in Treasury yields, floating rate loans (also called leveraged loans) are once again becoming a popular trade.
A Place for Active Management
by Heather Rupp of AdvisorShares,
Be it how hedge fund returns have been struggling over the past year or how index funds have been gaining some traction, there has seemed to be much in the financial media over the past few weeks about the challenges facing active management.
The US Fixed Income Market
by Heather Rupp of AdvisorShares,
The U.S. fixed income market is massive at around $40 trillion. The largest subcategory is U.S. Treasury debt. Mortgages represent the second largest single subcategory of the bond market; this helps to explain why problems in the mortgage market nearly took down the entire financial system in 2008.
Loans: The Floating Rate
by Heather Rupp of AdvisorShares,
We see investing in the loan market as predominantly a way to expand our investment universe. Again, high yield debt issuers have the option to issue bonds, loans, or both. We see cases where companies take out bonds with loans or vice versa, take out loans with bonds, so by having the option to include both, investors are able to access companies with attractive metrics and yield no matter the security, and in cases where a company issues both bonds and loans, loans are secured and rank higher the company’s capital structure so can allow for the ability to invest in a lower levered piece of the capital structure.
Today’s Floating Rate Loan Market
by Heather Rupp of AdvisorShares,
We are high yield debt investors. While our focus over the decades has been on investing in high yield bonds, we also do allocate a portion of our portfolio to floating rate bank loans. We see the inclusion of loans primarily as a way to expand our investment universe.
The Selective Energy Opportunity
After working to sizably cut our energy allocation in early 2015 as we expected the volatility in oil to continue, we are now selectively adding a few energy names to our portfolio. Since we have been clanging gongs for a long period of time on the avoidance of high yield bonds financed by US exploration and production (E&P) companies operating in shale basins, has anything changed now that many of these bond prices have collapsed?
High Yield Market Technicals
by Heather Rupp of AdvisorShares,
As we start to see the high yield market gain some footing, it is important to note the improved market technicals, mainly fund flows and primary market issuance. For the week ending March 16th, we saw high yield retail funds take in another $1.7 bil, making it the fifth consecutive week of inflows.
High Yield vs. Equities—Is This the End of the Run for Equities?
by Heather Rupp of AdvisorShares,
The decline in credit has been well publicized over the last several weeks, though this decline began months ago. Since the summer, we have seen spreads, a measure of valuation for the high yield market, widen from 400bps to 760bps1, which are levels we have not seen for the last four years.
Life in a No Growth World and the Impact on Interest Rates
by Heather Rupp of AdvisorShares,
The recent Fed decision seems to provide no more clarity: they left the opening for a December hike but didn’t specifically commit to making a move then. So the question remains, when will the Fed begin raising rates and by how much? It is clear they want to start increasing rates in order to give themselves some flexibility if they need it down the road, all the while fulfilling their dual mandate. However, it seems the “data” for our “data dependent” Fed isn’t getting better globally.
The Defaults Ahead
by Heather Rupp of AdvisorShares,
Much has been made about the outlook for defaults in the high yield market. Many have speculated that we are at the beginning of a big upturn in that default cycle and thus, this market should be avoided. While this makes for good headlines, the projections we’ve seen, and our own expectations, don’t add up to a big uptick in default rates. Yes default rates will likely increase, but remain below historical averages for the high yield market.
Liquidity Premiums In High Yield Investing
by Heather Rupp of AdvisorShares,
There is no denying that liquidity has become a well-publicized concern in today’s high yield market, with much focus specifically on high yield ETFs. With the post financial crisis regulation that has curtailed market making activity by the large investment banks and dealer inventory, liquidity has decreased and volatility increased. However, we believe that arguments that liquidity concerns within the ETF space will lead to the high yield market’s demise are overblown.
Fear Mongering in The High Yield Market
by Heather Rupp of AdvisorShares,
There have recently been a few high profile investors that have spoken out against the high yield market, with Carl Icahn among the more vocal. While Icahn may have an agenda or perhaps a short trade in high yield, it is peculiar that he is so vocal against high yield bonds, calling it a bubble, when many of his equity purchases also are high yield issuers, not to mention his Icahn Enterprises is an issuer of high yield bonds.
The High Yield Market: A Look at Past Recessions
by Heather Rupp of AdvisorShares,
The Fed interest rate decision came and went with relatively little market reaction. They pushed out an increase in rates, citing concerns about global economic conditions. Like many, we do share their concerns about the global economy, as we expect that it will result in muted growth here at home (and as we have noted in prior writings over the past several months, we’d expect that muted growth to ultimately result in a very moderate move in rates). But some market participants are voicing concerns that this global weakness will lead to a U.S. recession.
Closed End Funds versus Exchange Traded Funds
by Heather Rupp of AdvisorShares,
There are currently a number of fund-based options available to investors looking for yield. In addition to traditional open-ended mutual funds, investors are also turning toward closed end funds (CEFs) and exchange traded funds (ETFs) to generate yield, including in the high yield bond market. Both CEFs and ETFs have continuous trading and pricing throughout the day, making them very liquid options for investors. While CEFs tend to be actively managed, there are both index-based options and actively managed options in the ETF space.
What Value are Credit Ratings?
by Heather Rupp of AdvisorShares,
If there was any question about it, the financial crisis of 2008 demonstrated to us all just how flawed the ratings process is, where AAA debt was suddenly in default and highly rated companies all of a sudden required bailouts seemingly overnight. However in the aftermath, while there have been efforts to reduce our reliance on ratings, it has also become clear that changing the ratings process is exceedingly difficult, if not impossible. They are ingrained in our system and ingrained in the way many people and institutions invest.
The High Yield ETFs: Market Size, Money Flows, and Liquidity
by Heather Rupp of AdvisorShares,
The entire U.S. fixed income market (municipals, Treasuries, mortgages, corporates, federal agency bonds, money market, and asset back securities) totals $39.2 trillion. Of this, corporate credit is about $8 trillion. The high yield bond market is a growing piece of that corporate debt piece, now at $1.8 trillion, and accounts for over 20% of total corporate bonds outstanding. If you add in high yield floating rate loans, that total high yield debt number moves to over 30% of corporate debt.
High Yield Default Outlook
by Heather Rupp of AdvisorShares,
With the energy markets once again taking a turn downward, we are seeing concern for the high yield market again escalating and talk of a spike in default rates heating up. Yes, the energy industry does make up a large portion of the high yield market, in fact the largest industry holding within the space at about 14-17% depending on the index used. We do expect defaults to increase in this industry.
High Yield Bonds: Rates and Returns
by Heather Rupp of AdvisorShares,
With a number of data points over the past month, including Friday’s better than expected jobs report, pushing the expectations for a September rate hike higher, concerns about the impact of interest rates on various asset classes is heating up. It is important to keep in mind that if and when “rates” do rise, we are talking about the Federal Funds Rate which we expect will primarily impact the short end of the yield curve, and less so those 5-year to 10-year maturities that relate more to the high yield market.
Time to Go Active
by Heather Rupp of AdvisorShares,
Earlier this week we saw one of the major financial publications feature an article about how active management has outperformed passive management so far in 2015. While their article and data focused on equity funds, we believe that the same sort of opportunity for active fixed income managers exists over the balance of 2015.
High Yield Bonds: A Legislative History and the Opportunity Created
Throughout history of the high yield market there have been various legislative acts that have created and continue to create the market dislocation that allows investors an opportunity to produce what we see as attractive risk-adjusted returns.
Overview of the Fixed Income Market
As we look at the high yield bond market, it is important to have an understanding of the fixed income marketplace and the investment options within it. The first thing to note is the sheer size, which is massive (just under $40 trillion).1 Somewhat surprisingly, mortgages represent the second largest single subcategory of the bond market; this helps to explain why problems in the mortgage market nearly took down the entire financial system in 2008. The largest subcategory is U.S. Treasury debt.
Rates and Bonds
by Heather Rupp of AdvisorShares,
So at long last we know whether the word “patient” stays or goes: it’s gone and Treasury yields have actually declined as a result. So far this year we have seen rates go from a 2015 low of 1.19% on the 5-year and 1.68% on the 10-year on February 2nd, and then spike a month later at 1.70% and 2.24%, respectively, on March 6th. So an over 50bps move in a month all over the worry about the word “patient” and whether rates will rise as early as June. Only for rates to fall after the statement was released and the key word removed.
Today’s Floating Rate Loan Market
by Heather Rupp of AdvisorShares,
Together the high yield bond and floating rate bank loan market total over $3 trillion.1 This has evolved into a significant, and growing asset class. With high yield bonds and loans now representing about 30% of corporate credit2, this market deserves not only our attention, but we also feel is ripe with opportunity for investors.
High Yield in a Rising Rate Environment: Duration and Yield
by Heather Rupp of AdvisorShares,
We began February with a yield on the 10-year Treasury of 1.68% and today sit at 2.14%.1All the concerns and talk of maybe even no rate rise this year that we saw in January, have turned to frequent mention of a rate rise beginning in June. So what are bond investors to do? Is this finally the year of rising rates and what impact does that have?
Alpha Generation for Active Managers
by Heather Rupp of AdvisorShares,
As we discussed in our recent blog (see “The Opportunity in Volatility”), we are currently seeing a lot of attractive opportunities in the high yield market—discounts and yields that we haven’t seen in some time. And while we have seen the yields in the high yield indexes and the products that track them increase over the last six months, they don’t really seem to reflect the true opportunity we are seeing in the market.
The Opportunity in Volatility
by Heather Rupp of AdvisorShares,
While 2014 was characterized largely by the lack of volatility for most the year, and active management suffered as a result, we see those tables turning in 2015 as we expect this volatility to continue. As we sit today, we see an attractive entry point into the high yield market for active managers who can parse through the space to determine where there is value to be had, and where there are value-traps.
High Yield Bonds versus Equities
by Heather Rupp of AdvisorShares,
Investors are often led down the path that they must invest in equities in order to generate a decent return, and that the high yield market is too risky and speculative. However, reality and the data points suggest otherwise. Looking over the past couple decades and various periods in between, you can see that high yield has outperformed the equity market (as measured by the S&P 500 Index) on a risk adjusted basis (return/risk) over the past 5, 10, 15 and 25 years, and performed equivalently over the last 3 years.
Volatility and Risk
by Heather Rupp of AdvisorShares,
Volatility has seemed to be the trend in markets over the past couple months. It was just a few weeks ago that we saw equity markets getting crushed, only to roar back and actually finish up for the month of October and back near all-time highs. It makes no sense to us that investors have no problem dealing with volatility in stocks, investing for the long run, as the stock market has historically gone up, but with the high yield asset class, we often see the risk on or risk off mentality, meaning investors think they should either be fully invested
Investing by Duration
by Heather Rupp of AdvisorShares,
It was hard to ignore the call in the fixed income space for short duration investing over the last couple years. Duration is a measure of interest rate sensitivity (the percentage change in the price of a bond for a 100 basis point move in rates), so the lower the duration the theoretically less sensitive those bonds are to interest rate movements.
High Yield in a Rising Rate Environment: A Perspective on Historical Performance
by Heather Rupp of AdvisorShares,
Since 1980, Treasury yields have increased (i.e., interest rates rose), in 15 of those years. In every one of those years, high yield has outperformed the investment grade market. The long-term numbers show that over those 15 years since 1980 where we saw Treasury yield increases (i.e., interest rates rose), high yield had an average return of 13.7% (or 10.4% if you exclude the massive performance in 2009). This compares to only a 4.5% average return (or 3.6% excluding 2009) for investment grade bonds over the same period.
High Yield Bonds and Interest Rates
by Heather Rupp of AdvisorShares,
Over the last month, we have seen the equity markets hit all-time highs, all the while bond investors seem to be indicating there are reasons to be concerned, sending the 10-year Treasury to the lowest yields seen over the past year.
Expanding the Opportunity Set for Income Generation
by Heather Rupp of AdvisorShares,
High Yield investors should understand the difference between an index-based product and its yield generation characteristics and portfolio composition based on the underlying index, versus some of the expanded opportunities available to active managers. For instance in the high yield bond and bank loan space, we see index-based, passive products that are largely high yield bonds or largely floating rate bank loans, not a blend of each.
High Yield versus Equities
by Heather Rupp of AdvisorShares,
Investors are often led down the path that they must invest in equities in order to generate a decent return, and that the high yield market is too risky and speculative. However, reality and the data points prove otherwise. Looking over the past couple decades and various periods in between, you can see that high yield has consistently outperformed the equity market (as measured by the S&P 500 Index) on a risk adjusted basis (return/risk).
A Perspective on High Yield Spreads
by Heather Rupp of AdvisorShares,
There have been recent headlines about yields in the high-yield market hitting all-time lows. Yes, this is true, but lets put this in some context. First, interest rates have been at or near all-time lows for years, pressuring yields in all fixed income securities as investors search for places to generate returns. Comparatively, we believe the high yield market still looks very attractive.
The True Opportunity in Todays High Yield Market
by Heather Rupp of AdvisorShares,
There has been talk recently about the yield of the high yield market, as represented by the various indexes, and if there is return left to be had. While the high yield indexes are representative of the high yield market, we do not believe they are representative of the true opportunity in the high yield space.
Hedged High Yield
by Heather Rupp of AdvisorShares,
A strategy that we have seen emerge over the past year within the high yield market has been hedged high yield, most recently with iShares rolling out an product last month that uses their passive, index-based HYG fund as the high yield component. The gist of the hedged high yield strategy is to go long high yield bonds and short Treasuries (or Treasury futures). The basic premise is that the strategy will hedge interest rate risk, with any bond pricing decline due to rising rates being offset with the short in Treasuries.
The Default Outlook
by Heather Rupp of AdvisorShares,
On April 1st, TXU/Energy Future Holdings skipped their interest payment due that day, immediately triggering a default by some reporting mechanisms. While the company has a 30 day grace period to pay the coupon payment, most expect them to use the grace period to work further on a restructuring and ultimately file for bankruptcy at some point over the next 30 days.
Avoiding Complacency
by Heather Rupp of AdvisorShares,
Active managers dont have a mandate to hold any certain securities, thus they can pick and choose as to what they feel offers the best return level for a given risk profile. The high yield bond market still offers plenty of what we view as very attractive opportunities in credits that we see as solid companies at yields about 300 basis points or more above the yield level on this bond.
The Expanding Leveraged Loan Market
by Heather Rupp of AdvisorShares,
At the end of the day, a loan investor may be left with a security that has a low starting yield, little left in the way of capital gains potential, and with coupon income that is not at all increasing even if rates were to rise. While there are some selective opportunities for value in the loan space, broadly speaking we see high yield bonds as a more attractive market in the current environment.
The Equity "Game"
by Heather Rupp of AdvisorShares,
We have seen the cracks begin to emerge in the equity story over the past week. Earnings are beginning to come in and so far have been a disappointment. The retail sector is showing signs that Q4 was weaker than originally expected, with store cuts announced by, Sears, J.C. Penney, and Macys and job cuts at Target. Emerging markets have been roiled this week, with Argentina shifting policy, likely devaluing their currency, and other currencies plunging.
Investing by Duration
by Heather Rupp of AdvisorShares,
Lower duration bonds would not eliminate the interest rate impact, just lessen it. We see this as a good strategy broadly speaking if you are talking the high yield asset class versus the investment grade asset class, with the high yield market naturally having a much lower duration. However, we believe this strategy is lacking when it is used to parse out the high yield space itself, investing in only the lower duration names within the high yield category.
Bonds and Rates
by Heather Rupp of AdvisorShares,
Right now the topic de jour in the fixed income space is interest rate risk. The traditional thought is that as interest rates rise, bond prices fall. But looking at history, the high yield market has defied this widely held notion. Lets examine the four main reasons why high yield bonds have historically performed well during times of rising interest rates.
Results 1–50
of 53 found.
