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Holly LaFon
Holly LaFon
Articles (7055) 

Hotchkis & Wiley Webinar Highlights - A Review of the Current High-Yield Environment

May 24, 2013 | About:
On our April 17th webinar, Mark Hudoff, portfolio manager of the Hotchkis & Wiley High Yield strategy shared his thoughts on the current opportunities and challenges in the high yield marketplace.

The following recap highlights his views.

Top 10 Takeaways

• During Q1, small caps, fallen angels and low-rated credits outperformed their counterparts.

• Our proclivity for small cap credits and fallen angels contributed to our strategy's outperformance, in addition to general credit selection.

• The high yield market tightened, ending the quarter with a spread of approximately 475 basis points over treasuries.

• While low in absolute terms, we believe spreads remain reasonable given the benign default rate hovering around 1%.

• Corporate balance sheets remain strong.

• From a Corporate Treasurer's perspective the current environment is an excellent time to issue debt; from an investor's perspective this warrants caution.

• Consequently, the high yield and bank loan new issue markets maintained their torrid pace during Q1.

• High yield bonds and bank loans are both high yielding credit instruments, but have nuances that produce different behaviors in different stages of the business cycle.*

• High yield bonds have outperformed bank loans at the end of recessions (steady rates/ steep yield curve) and at the beginning of expansions (falling rates/flat yield curve).

• Bank loans have outperformed high yield bonds toward the end of expansions (rising rates/ flat yield curve).

Rating: 3.8/5 (5 votes)


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