Dave Breazzano, head of Polen’s High Yield Team, joined an Asset TV Masterclass to discuss the risks and opportunities in fixed income markets and share his top 3 takeaways about high yield investing.
- On Inflation: In our universe, inflation impacts each company differently based on their business model. So, we look at goods versus services as an example. Inflation in goods appears to be moderating, but labor costs are still a challenge. As credit investors, we must analyze the impact of inflation and different credit dynamics and how it affects each of our companies. So certainly, inflation is something that’s top and front of mind for us in how it impacts our credits.
- On the Banking Crisis: Where we’ve seen the impact is the tightening in lending standards. So, we’re seeing a lot of growth and opportunity in private credit because traditional lenders and banks are reluctant to lend. They’re worried about liquidity and a theoretical run in their deposit base. So, it’s created some liquidity issues but also opportunities for those with more permanent capital to finance their lending activities.
- Why High Yield?: Interest rates finally are at attractive levels after about 15 years. So, you’re getting paid to own and participate in the leveraged credit market. Plus, when you peel the layers of the onion away, the credit quality profile of the market is pretty good. There’s no near-term maturity wall, and this reflects a combination of factors, unlike prior severe inflection points, like in ’07 and ’08, people were generally caught by surprise.
- 3 Takeaways: One, absolute yields are attractive. Two, near-term default losses aren’t expected to be that severe. And three, we have this wonderful tactical opportunity to refinance shorter-term maturities. It’s a win-win, the way we see it.
You have to be very nimble & focused on where you see value, and always be focused on downside protection. It’s critical.
—Dave Breazzano, Head of Team & Portfolio Manager, U.S. High Yield
Watch the full Asset TV Fixed Income Masterclass here →
Please note that this document is a condensed summary of the full roundtable interview conducted by Asset TV.
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