“The goal across all of our actively managed fixed income funds is to deliver competitive returns without taking on undue risk,” Chang said. “To do that, we have in place a dedicated, specialized presence in all major areas of the bond market, including high yield—it gives us the largest opportunity set possible for generating active return for our investors.”
How does our approach to high yield differ from some of our competitors’ approaches? Our investment philosophy centers on a higher-quality credit bias, with a focus on security selection and diversification as the way to outperform over the long term. Going down in credit quality is not a strategy that tends to work out well in the long run, and our fee advantage means we can be more patient and disciplined in waiting for better entry points to add risk.
High-yield bonds, like all fixed income instruments, have limited upside, so a key element in generating competitive returns is avoiding the land mines—bonds that get downgraded or restructured or that go into default. In security selection, we differentiate ourselves in our proprietary scoring matrix. We start by analyzing companies based on a common set of criteria, including their sensitivity to economic growth, the outlook for their industry, their competitive position within that industry, their level of patent protection, the quality of their management teams, and their financials.
“Those are pretty standard criteria,” Chang said, “but then we translate our assessments into scores that we use across all of the companies we look at. That allows us to do a few things: rely on our own credit assessment of companies rather than on those of credit-rating agencies; use our scoring to consistently compare companies to one another and across industries; and compare our assessment with that of the market to identify relative value opportunities within high yield that could translate into alpha.”